The MSMEs have huge responsibilities to discharge towards development of the nation. They have been crying for decades, for need based funds especially after closure of State level financing institutions in many States like SFCs and SIDCs, etc.
Needless to elaborate, that the MSMEs are the growth engine of our society; they are the link between agriculture and large scale sector. The MSMEs are responsible for value addition of the farm products and also for ancillary support to the large scale industries.
They generate about 92 percent of industrial employment, about 40 percent of exports and the GDP of the nation is directly proportional to the health of MSMEs.
The investment made in one small steel plant is adequate to resurrect entire MSMEs of the country. But the funding must be direct and to ensure that it reaches the MSMEs.
Please do not try to fund them through SIDBI or commercial banks. Almost in every budget, the SIDBI is allotted funds for MSMEs, why then there is still a huge gap in requirement of funds in this sector? It has never worked before and will never work now. Neither the SIDBI nor any banks have ever refused to sanction any MSME proposal because of shortage of funds; it has always been because of deficiencies in compliance of sanction terms and conditions.
The process of appraisal in banks and financing institutions is too complex and unnecessary. The sanction paraphernalia are too cumbersome. E.g. The credit history of the borrower is analyzed right from the inception of business, may be 40 or 50 years back through bulky CIBIL reports for several years, even in different companies.
Instead there should be a cutoff date, till how many years back the credit report should be tracked say, 3 years, 5 years, whatever. This shall make the process simpler and faster even for banks and FIs.
Thus the present system is a never ending process and largely depends on the mercy of the bank officer. Further, the sanctioning process may even continue for years, there is no time limit. The bank officer's stand is also very clear; he has to follow the guidelines issued by his bank/RBI and the Government or else his service may be at stake. In the bargain the units suffer and the funds allotted by the Government for MSMEs seldom reache them.
It is thus imperative that the Government has a relook at the sanction paraphernalia and streamline the process for sanction of MSME loans.
The Covid-19 has already caused serious damages to the MSMEs across the country. For bringing them back on track the under mentioned submissions may be considered urgently.
Relief under Covid-19: For immediate implementation.
1. The deferment of EMIs by RBI w.e.f. March 1 2020 to May 31, 2020 may kindly be deferred by one year w.e.f March 1, 2020 to end February 2021. It should be applicable to all, unless the borrower volunteers to make payment. As per present RBI circular, most NBFCs/banks are demanding EMIs unless the borrower goes into their websites and asks for moratorium which is time consuming and may not be feasible for all borrowers.
No delayed period interest or bouncing charges to be levied during this moratorium period on these EMIs. Now that the Government has incentivized NBFCs, they can extend this facility to their borrowers and they can make good the losses if any by lending fresh loans to MSMEs.
2. The interest on Working Capital, OD limit or on Term Loans including housing loans / LAP etc to be waived for a period of 6 months or as an alternative, may be restructured with 5 percent interest p.a. This loan can be paid over a period of next 36 months w.e.f September 1, 2020 onwards. As per present circular it will never be possible for most borrowers to pay the accumulated interest at the end of the moratorium period of three months.
3. To restart the operations, at least 25 percent of the existing limits of all MSMEs registered under GST to be enhanced suo moto and credited to the borrower’s account automatically unless the borrower refuses to avail the enhancement. There should be no additional conditions attached to this except that the enhanced amount may be considered maximum up to Rs 2 crore.
This is extremely important especially in States like Odisha where there are no State level funding agencies for MSMEs and it is hard to satisfy the stringent norms of the commercial banks to raise loans.
4. The loan extended by SIDBI under SAFE (SIDBI Assistance to Facilitative Emergency Response against Coronavirus) up to Rs 2 crore and SAFE PLUS up to Rs 1 crore WC loan may kindly be extended to all MSMEs registered under GST instead of limiting the loan only to units manufacturing corona virus related products and having Government orders only.
It is important to note here that the non Corona virus related equipment/products manufacturing units are also MSMEs and deserve to be supported by the Government against the loss sustained by COVID-19, or else, how are these units going to resume operations?
These loans should have no other condition attached like collateral etc and at least 25 percent of existing sanction limit may be enhanced and disbursed through their respective Banks.
5. Similarly the relaxation for Provident Fund , ESIC , GST and Income Tax filing date and other compliances etc to be shifted by one year to end February 2021
6. CIBIL and other CICs to be advised not to treat the moratorium period as default.
7. The NPA norms to be shifted to 180 days, instead of 90 days and all defaulting accounts as on December 31, 2019 or after, to be restructured as a onetime measure.
8. The lending procedure, appraisal and documentation for MSMEs by banks/SIDBI/NBFCs must be simplified and completed in a time bound manner.
9. The minimum demand charges in the energy bills to be waived for a period of six months from March 1, 2020 to August 31, 2020.
10. The employee salary for the lockdown period should be compensated by ESI department or it must be left to the discretion of employers.
11. Large numbers of MSMEs are suffering loss due to their dues being held by the Government and the corporates. They are not in a position to contest against these mighty institutions in the court of law. Hence their dues are to be cleared immediately with prima facie evidence where the claim has already been filled and even in new cases.
Lockdown has been exercised in almost all countries in the world. Most of them have extended relief packages to their Small Businesses (MSMEs) against Covid-19 losses in form of grants, soft loans and in any case commercial loans are always available to them. India is the 5th largest economy in the world. We should try to match these compensation packages, at least extended by the European countries most of which have a smaller economy than us.
The proposed relief, if provided immediately, it will not only make good the losses caused through Covid-19 but will also revive our ailing MSMEs which can gradually start generating employment and the economy can bounce back.
(The writer is working chairperson, EFCAI (Entrepreneurs and Financial Customers Association of India) and ex-chairman Orissa Assembly of Small & Medium Enterprise, Efcai12@gmail.com)