A Better Lending(Indian Express)

Mains Paper 3:Economy 
Prelims level: MSMEs
Mains level: Economic growth and development process, revival of MSMEs 

Context: 

• The government’s initiatives announced in the stimulus package have been geared towards helping MSMEs maintain liquidity and for ensuring greater credit availability. 
• The emergency credit line, the subordinate debt provision and the equity infusion measure, apart from the long-awaited reform to the MSME definition, have been significant interventions. 
• It is important, however, to examine how game-changing they have been to the existence of approximately 6.3 crore MSMEs that employ 11 crore people across the country.

Results from survey:

• A recent nationwide survey, conducted by the All India Manufacturing Organisation (AIMO), found that 78 per cent of small companies’ owners were not satisfied with the implementation of the package. 
• The results of the survey also suggest that transmission on the ground is slow, moreover 85 per cent of the sector may not benefit from it. 
• In another survey carried out, 79% of respondents believed that the Emergency Credit Line Guarantee Scheme (ECLGS) has not yielded the desired results, while 70% say that they haven’t availed the benefits of loans and interest moratorium.
• As of July 4, Rs 1.14 lakh crore worth of loans have been sanctioned. However, only close to half that amount sanctioned has been disbursed.
•  Ills in MSMEs: 
• Even before COVID, the MSME sector was marredby rampant informality, stunted growth and bore a heavy share of the compliance burden. 
• It is important to periodically assess and identify measures that could ease these challenges that have been exacerbatedby the pandemic and provide relief to these businesses. 
• Despite financial and regulatory support offered to the sector, there is a clear operationalisation and implementation gap. 
• The Global Alliance for Mass Entrepreneurship’s (GAME) National Task Force on MSMEs recommendations hold the promise of not just short-term survival but also of helping MSMEs thrive.
• This entails ensuring credit reaches those who need it the most.
• Credit growth to MSMEs, in particular, has declined — a clear sign of risk-averse bank lending that has only become worse. 
• Lending to micro and small enterprises has contracted 3.4 per cent, while to medium enterprises, it has contracted 5.3 per cent. 
• The RBI has clarified that Member Lending Institutions (MLIs) shall assign zero% risk weight on credit facilities extended under the scheme since these are backed by an unconditional and irrevocable guarantee by the government. 
• Despite this, a lag in loan disbursals is seen, especially with private sector banks still hesitant to lend, but even when doing so, preferring to disburse larger loans.

 Changes proposed: 

• First, set aside credit for new-to-credit MSMEs with a focus of bringing them into the formalised fold.
  • The current scheme is open only to MSMEs who have a Rs 25-crore loan outstanding and a turnover of up to Rs 100 crore.
  • This implies that fresh borrowers cannot avail of this scheme. Such MSMEs need to be targeted to bring them into the formal credit ecosystem.
  • The Task Force has recommended that Rs 1 lakh crore be set aside for disbursing small ticket size loans of Rs 1 lakh to first-time MSME borrowers.
• Second, mandate a definite percentage of credit guaranteed loans to be released to micro and small businesses.
  • Ninety-nine per cent of enterprises in the MSME sector are micro-enterprises that are largely informal.
  • These 6.3 crore micro-enterprises comprise of one-person businesses/self-employed persons and units that employ less than 10 workers.
  • Small enterprises, at an estimated 3.3 lakh, are the next highest in number.
  • Post the upward revision in turnover limits of medium enterprises, a greater number of enterprises will be eligible for benefits enlisted for this sector.
  • To ensure that these enterprises are not crowded out in such a situation, mandating a certain percentage of credit guaranteed loans to micro and small enterprises could offer them necessary succour.
• Third, bridge the gap between the amounts sanctioned and disbursed by banks under the ECLGS.
  • It could be that state-owned banks are under pressure to show that the scheme has received a good response, and hence are giving automatic sanctions to all eligible borrowers.
  • Disbursements, however, will depend on the actual credit needs of the borrower.
  • Another reason could be that a borrower can avail only 20 per cent of the outstanding loan amount.
  • For those MSMEs that have repaid their loans, the window of fresh loans is very small.
  • Such prescriptions need to be examined to ensure that MSMEs in genuine need of credit are not left out.
  • Fourth, scheme eligibility, application processes, and benefits need to be conveyed more simply.
  • While the CHAMPIONS portal has a comprehensive information base and exhaustive FAQs, these need to be disseminated in multiple languages through various channels.

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Prelims Questions:

Q.1) With reference to the CogX Awards 2020, consider the following statements:

1. India’s Artificial Intelligence (AI) enabled MyGov Corona Helpdesk has bagged two awards at the Global Leadership Summit and Festival of AI and Emerging Technology, CogX 2020. 
2. CogX is a prestigious Global Leadership Summit and Festival of AI and Emerging Technology held annually in London.

Which of the statements given above is/are correct?

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: C

Mains Questions:

Q.1)How COVID 19 induced lockdown impacted the MSME sector? What are the steps taken by the government in this context like Emergency Credit Line Guarantee Scheme?