The Micro, Small and Medium Enterprises (MSMEs) sector plays a critical role in powering economic growth and generating employment opportunities. As per government data, there are 6.34 crore MSMEs in India. However, less than 40% of these enterprises borrow from the formal financial system, leaving an overall credit gap in the sector estimated at Rs. 20-25 lakh crore.
Lack of Formalization in MSMEs Sector
Many MSMEs operate outside of the formal credit ecosystem, which affects the ease with which they can access necessary funding. With the MSME definition revised by the government in 2020, there is now an urgent need to formalize this sector and strengthen credit flows to it.
Challenges: Fragmented and Inadequate Data
MSME data is often fragmented and not integrated across multiple databases, leading to difficulties in obtaining a comprehensive understanding of the sector. The last MSME survey conducted by the National Sample Survey Office (NSSO), Ministry of Statistics and Programme Implementation was six years ago. The lack of updated and comprehensive data has caused hesitation from banks in lending to the MSME sector.
Parliamentary Panel Suggestions to Improve Credit Flow
To address these issues, the Parliamentary standing committee on finance has made several recommendations. One such proposal is to develop the Udyam portal into a one-stop central data repository for the MSME sector, linking it with other databases such as CIBIL data, utility bills data, and more. The committee has also suggested creating a ‘Unified Payments Interface (UPI) for MSME Lending,’ allowing MSMEs to access small-ticket working capital loans conveniently and economically.
‘Vyapar’ Credit Card Scheme
Another recommendation from the panel is the implementation of a ‘Vyapar’ credit card scheme for MSMEs, similar to the Kisan Credit Card (KCC) scheme. The proposed ‘Vyapar’ credit card, backed by SIDBI, aims to bring millions of MSMEs, including street vendors and kirana stores, into the formal financial system. The credit card will offer short-term working capital loans with low interest rates and could potentially extend collateral-free loans, similar to the Rs 1 lakh collateral-free facility available to KCC holders.
Updating MSME Census
The panel has also underscored the importance of conducting a new MSME census in line with the revised definition. This will provide a real-time estimate of the total number of MSMEs in the country and allow for more realistic assessments of their credit needs.
Initiatives to Promote MSME Sector
The Ministry of Micro, Small & Medium Enterprises (M/o MSME) has implemented several initiatives to support the sector’s growth and development. Some of these include the Prime Minister’s Employment Generation programme (PMEGP), Scheme of Fund for Regeneration of Traditional Industries (SFURTI), Interest Subvention Scheme for Incremental Credit to MSMEs, and Credit Linked Capital Subsidy and Technology Upgradation Scheme (CLCS-TUS).
MSME Guidance Portals
Further support is provided to MSMEs through platforms like the CHAMPIONS portal, which helps resolve grievances and provides support to MSMEs. The Udyam Registrations Portal offers a valuable data aggregation service, and the MSME SAMBANDH Public Procurement Portal monitors the implementation of public procurement from MSEs by Central Public Sector Enterprises.
