The Government has over the last two years unveiled a host of schemes to promote the Micro, Small and Medium Enterprises (MSME) sector. But lending institutions appear to be still stuck in the inflexible era
Governments announce and operationalise several schemes to help the needy, whether in the agricultural or the industrial sector, and in the establishment of small enterprises. The intent is good and to an extent there is also a decent level of implementation. However, often, successful implementation runs into ground-level hurdles, not created so much by the Government’s executive arm but by players who are supposed to implement those programmes not just in letter but also in spirit. The end result is that well-intentioned schemes remain largely on paper and the intended beneficiaries are left with a sour taste in the mouth. This cannot be good news for any Government, and certainly not for the present regime that is working at systemic changes.
let’s take an instance. One of the key thrusts of Prime Minister Narendra Modi and his Government in the area of employment generation, has been boosting self-employment and consequent employment generation. To this end, the Government has been active in the promotion of the Micro, Small and Medium Enterprises (MSME) sector. The Prime Minister has on various occasions reiterated his Government’s commitment to this end. Minister for MSME Kalraj Mishra too has said much the same thing.
In an interview to a business magazine a couple of years ago, Mishra claimed that the availability of bank credit “without the hassles of collaterals and third party guarantees is a major step towards supporting first generation entrepreneurs and help them realise their dreams of setting up a business of their own”. He went on to point out that the Small Industries Development Bank of India (SIDBI) had set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to cover losses arising out of non-payment of loans.
He made it sound simple enough: All that a potential loanee had to do was to approach the banks or other financial institutions that are member lending institutions (MlIs) of the CGTMSE. After passing the due diligence stage, the party seeking to borrow would be covered by the Credit Guarantee Scheme (CGS) and would not have to offer collateral or other forms of security, including guarantors, to avail the loan. Additionally, the Prime Minister, on December 31 last, announced that the credit guarantee limit for small business would double from one crore rupees to two crore rupees. Indeed, the CGTMSE requirements were plain enough.
A similar connected scheme was launched by the Government in 2015, the Micro Unit Development and Refinance Agency (Mudra), to fund and promote microfinance institutions (MFIs), which would in turn provide small loans to small and vulnerable sections of the businesses.
launching the project, the Prime Minister had said these businesses would provide almost 10 times more jobs than what was being generated by big firms. Mudra began with an initial corpus of Rs20,000 crore and a credit guarantee corpus of Rs3,000 crore. The initial corpus was provided by the banks from their priority sector lending shortfall.
Now, let’s come to the ground reality. Instead of number crunching, we shall take a real case which has played out over the last couple of weeks. While this may be an individual example of what is going wrong, it cannot but be representative of the thousands of similar cases across the country, where people wanting small and medium-sized loans to set up their businesses, are harassed by banks and financial institutions which have found ways to sabotage Government rules that are supposed to make the process of lending easier for deserving candidates. These institutions have their argument ready: They cannot offer loans without due diligence, regardless of CGTMSE or whatever.
The point is, such ‘due diligence’ comes into play only when a small entrepreneur wants loans, has every honest intent to repay, but unfortunately does not have the capacity to meet the stiff terms the lending institutions present. In other words, for these potential loanees, the Government’s attempt to smoothen their ride to the financial institutions, has meant little.
The case at hand has to do with a Jharkhand-based entrepreneur who wishes to set up a commercial printing press. Confident that the Union Government’s drive to make it easier for those wanting to establishment themselves in the MSME sector and generate employment for others, would help him get a loan without undue hassles, he approached two major public sector banks in Bokaro for a loan of one crore rupees. The money was to fund the purchase of equipment and set up an infrastructure for the business. He had not banked with any bank previously as a businessman. Although he had dabbled in a business earlier, it had not yielded sustained dividend and was discontinued. The two banks were willing to lend the money for his MSME provided he offered them security through immovable assets, collateral, and two guarantors.
The bank officers were unwilling to bend before the new rules that the Government has publicised nationwide and which makes it easier to access loans in the MSME sector. They claimed they had the discretion, regardless of such rules, to impose the same old terms (that have stifled the growth of the non-large business sector and driven away potential entrepreneurs). At one of the banks, not just the branch manager but even the circle officer concerned brushed the rules aside and said the loan would not come without the potential loanee meeting those old requirements.
Seeking due diligence is understandable, but using it is a pretext to circumvent progressive guidelines of the Modi Government to promote MSMEs, is not. What if the person seeking a loan does not (as is the case with the person under discussion) have any worthwhile security or collateral to offerIJ Why cannot he be accommodated under the CGS through paying a premium over and above his equated monthly instalment (EMI) that covers the loan risk factorIJ Aren’t the new rules the Government has framed meant to tackle issues arising out of a prospective loanee’s inability to offer collateralIJ There are ways, but clearly the financial institutions are not as eager for change as the Union Government is.
As mentioned earlier, the case at hand is representative of a larger failure. If a nationwide survey is done, the truth will be known. The best laid plans of the Union Government can be ruined if there is shoddy implementation at the ground level.
(The writer is Opinion Editor, The Pioneer)