Steps to ensure access of credit to MSMEs
The Government of India have received complaints / representations from time to time from Micro, Small and Medium Enterprises (MSMEs) regarding constraints in accessing credit from institutional sources. These inter-alia, indicate, insistence on collateral, delayed sanctioning of credit, sanction of lower loan amount as against the required amount and charging of higher rate of interest etc.
Reserve Bank of India (RBI) and the Government have taken several steps to ensure access of credit to MSMEs, which inter-alia include, advice to all Scheduled Commercial Banks (SCBs) to achieve a 20% year-on-year (YoY) growth in credit to Micro and Small Enterprises (MSEs), allocation of 60% of the MSEs advances to the Micro Enterprise Accounts, a 10% Annual Growth in number of Micro Enterprise Accounts.
Additional working capital limit to meet the requirements arising due to unforeseen/seasonal increase in demand, adoption of one cluster, operationalising at least one specialised MSME Branch in every district, simplified computation of Working Capital of MSE units to make it minimum 20% of the Projected Annual Turnover of the unit for borrowable limits up to Rs.5 crore, setting-up of Trade Receivables Discounting System (TReDS) to solve the problem of delayed payment of MSMEs, etc.
RBI has deregulated the interest rate on advances and these interest rates are determined by banks with the approval of their respective Board of Directors subject to extant guidelines. Loans to MSMEs are provided as per the interest rate structure of the bank. The interest rate is finalized based on various factors which inter-alia include, cost of funds to the institution, credit rating of the unit, tenure of loan, purpose of loan etc.