• MSME in India

The Indian MSME sector is the backbone of the national economic structure and has unremittingly acted as the bulwark for the Indian economy, providing it resilience to ward off global economic shocks and adversities. The Ministry of Micro, Small and Medium Enterprises, being nodal Ministry for MSME, envisions a vibrant MSME sector by promoting growth and development of the sector, including Khadi, Village and Coir Industries, in cooperation with concerned Ministries / Departments, State Governments and other stakeholders, by providing support to existing enterprises and creation of new enterprises.

Our newsletter is an attemppt to provide brief about the developments in MSME Sector on weekly basis.

  • MSME Schemes:

The government has introduced many schemes to encourage the micro and small industries. Through schemes such as Micro Units Development Refinance Agency Bank (MUDRA) and Credit Linked Capital Subsidy Scheme for Technology Upgradation (CLCSS), the Central government is boosting the credit availability for the MSMEs. MSME (Micro, Small and Medium Enterprises) schemes are initiatives launched by the Government of India to support and promote the growth and development of small businesses in the country.

  • Let us have a brief discussion on REVISED CREDIT GUARANTEE SCHEME

Revamped Loan Scheme for MSME: Revised Credit Guarantee Scheme For Micro, Small Enterprises To Be Implemented From April 1

In Budget 2023-24, finance minister Nirmala Sitharaman announced the revamping of credit guarantee scheme for micro and small enterprises with effect from April 1, 2023, with an infusion of Rs 9,000 crore to the corpus to enable additional collateral-free guaranteed credit of Rs 2 lakh crore.

A revamped credit guarantee scheme for India’s micro and small enterprises will come into effect from Saturday, with the annual guarantee fee for loans up to Rs 1 crore getting reduced from the peak 2 per cent to 0.37 per cent, reducing the overall cost of credit for small businesses. The limit on ceiling for guarantees has also enhanced from Rs 2 crore to Rs 5 crore. Credit Guarantee Fund Trust for Micro & Small Enterprises (CGTMSE) has issued guidelines in this regard.

Consequently, the corpus of Credit Guarantee Fund Trust for Micro & Small Enterprises has been infused with a sum of Rs 8,000 crore on March 30, 2023.

CGTMSE created a new landmark by touching the milestone figure of approving guarantees worth Rs 1 lakh crore during FY 2022-23, the MSME ministry stated.

  • Objectives:

The Credit Guarantee Scheme for Micro and Small Enterprises (CGS) was launched by the Government of India (GoI) to make available collateral-free credit to the micro and small enterprise sector. Both the existing and the new enterprises are eligible to be covered under the scheme. The Ministry of Micro, Small and Medium Enterprises, GoI and Small Industries Development Bank of India (SIDBI), established a Trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement the Credit Guarantee Scheme for Micro and Small Enterprises.

  • Eligibility/ Applicability :

New as well as existing Micro & Small Enterprises. Guarantee coverage ranges from 85% (Micro Enterprise up to Rs 5 lakh ) to 75% (others). 50% coverage is for Retail Activity

  • Nature of Assistance :

The credit facilities which are eligible to be covered both term loans and/or working capital for collateral free loan up to a limit of Rs. 200 lakh is available for individual MSE on payment of guarantee fee to bank by the MSE.

  • How to Apply :

MSE meeting the eligibility criteria may approach eligible Banks / Financial Institutions/ Regional Rural Banks/NBFCs. .

The FM stated during budget speech that, to support MSMEs in timely receipt of payments, Smt. N. Sitharaman further proposed to allow deduction for expenditure incurred on payments made to them only when payment is actually made.

For eligibility, application process and other process, please get in touch with us.

  • Trade Receivables Discounting System (TReDS) – Part 1

Trade Receivables Discounting System is a welcoming step by the RBI to regulate the trade receivables between MSMEs, Large Corporates and Financiers. This is beneficial not just for these individual players, but for the entire economy of the nation. TReDS is an institutional mechanism set up in order to facilitate the discounting of trade receivables of MSMEs from corporate buyers through invoice discounting by multiple financiers. This step is deemed to augment the trade account receivable management of the micro small & medium enterprises.

Following are the Salient Features of TReDS

  • Easy Access to Fund
  • No paper Work
  • Single Platform for sellers, Buyers and Financers
  • Transact Online
  • Competitive Discount Rates
  • Seamless Data Flow
  • Standardized Practices

TReDS is an online electronic platform and an institutional mechanism for factoring of trade receivables of MSME sellers. It enables discounting of invoices through an auction mechanism to ensure prompt realization of trade receivables.

  • MSME Corporate News:
  1. ODOP has become backbone of UP’s MSME sector, says CM Yogi Adityanath

Crediting the state’s MSME sector for being the backbone of industrial development, Chief Minister Yogi Adityanath on Friday said with the investment proposals of Rs 35 lakh crore received during the Global Investors Summit would help UP “emerge as the torchbearer of the fourth Industrial Revolution”.

He was speaking at an award and toolkit distribution ceremony under the Vishwakarma Shram Samman Yojana. “The state’s 96 lakh MSME units are the foundation of the state’s development. New designing and packaging institutes should be opened to take MSME products to a new level,” the CM said.

He further said: “The state’s one district-one product scheme is not only promoting the products of every district but also providing them with a global market. ODOP has become the backbone of the MSME sector of UP which has emerged as an example of self-reliant India,” the CM said.

The government is soon going to announce freight units for weavers’ looms. We must increase our strength so that we can connect with good design and good technology. The government is with you at every step,” he said.

The state is providing toolkits to 75,000 artisans associated with the yojana in the entire state, the CM said, emphasising on the need to have export promotion centres in every district so that the artisans could have better access to foreign markets through them. Also, 34 firms were given the State Export Award and 20 were given MSME award.

  • Digital public infrastructure to unlock the potential of MSMEs

Finance Minister’s announcement in the budget to allocate over INR 22000 crore for MSMEs is a testament to the robust growth and the indispensable contribution of the MSME sector to the Indian economy. Last few years have been momentous to the growth of this sector and with the increasing government impetus, it is proliferating the industry to the next level. Dedicated to the upliftment of the 65 million MSMEs, the interoperability of the different touchpoints is rapidly shaping the different contours of the economy’s digital ecosystem.

A digital ecosystem that delivers end-to-end solutions, from finance access, payments, operations, and management to convenient skilling and knowledge sources, would be an encouragement for enterprises to fully adopt digital technology. Digital technology has the potential to considerably benefit India’s MSME sector if the emergent infrastructure is supported by the government, solution providers, and, most crucially, users.

Let us take a closer look at the different cornerstones of the digital infrastructure aiding the MSME industry:

Access to finance: MSMEs contribute greatly to economic activity of the country. Access to easy, cheap and timely credit is one of the key necessities for the growth of any business. MSME usually face capital crunch on a regular basis. Various Government initiatives provide much needed credit to MSMEs at a cheaper rate. One of the most significant advantages of using technology in lending is that it can speed up the entire process. With the use of big data and AI in public infrastructure, lenders can assess borrowers’ creditworthiness and approve loans in a matter of minutes. The same can also be utilised can also be used to assess risk more effectively. By analyzing a borrower’s credit history, financial statements, and other relevant data, lenders can identify potential risks and take steps to mitigate them.

Financial institutions and other participants, such as fintech companies, might combine, generalise, and exchange data about SMEs. When the data pool gets bigger, credit risk models often grow more accurate. The is practiced in Japan and France, wherein credit data is stored and used used for portfolio management, interest rate setting, and loan evaluations. In addition, they have also helped banks analyse credit risk in a more advanced way. Credit scoring techniques and the creation of shared databases are still in the early stages in emerging nations.

Be that as it may, the social and economic benefits of fintech in enhancing underserved populations’ access to financial services, enabling simpler and less expensive cross-border payments and transfers (such as remittances), and more, their use is still relatively low in comparison to conventional debt financing.

The end goal is to create a robust network that will simplify complex processes, and help the financial resources reach the beneficiaries timely, thus upholding the financial inclusion vision of Digital India. Therefore, investment in a public infrastructure that is 24/7 online can make MSMEs resilient and better equipped to tackle the unforeseen shifts in the economy.

Online marketplaces: India’s e-commerce marketing is thriving at an astronomical rate and will outpace more mature global markets by 2030. It is expected to touch $ 200 billion by 2026. India has become home to multiple divisions of commerce ranging from business-to-business (B2B), direct-to-consumer (D2C), and consumer-to-consumer (C2C). One of the most important aspects of going digital with data and information is that it expands the horizons in two ways-for the businesses and for the consumers. Digital public infrastructure gives MSMEs the resources to expand their markets and go beyond borders. On the other hand, it helps consumers locate far-off businesses and avail themselves of their products and services. With more players in the ecosystem, the market will get more competitive, thus leading to R&D and innovation. On the authorities’ front, digital public infrastructure can foster a fair and level playing field for the market players.

Digital payments: Digital public infrastructure can provide an impetus to payment platforms that enable secure and seamless online transactions between buyers and sellers. Payment gateways are being integrated into e-commerce websites, mobile apps, and other digital platforms, allowing MSMEs to accept payments from customers using a variety of digital payment methods, such as credit cards, debit cards, e-wallets, and UPI. The linkage of UPI with international fast payments systems is giving a robust infrastructure to execute cross-border remittance. Real-time payments can improve cash flow and reduce the time and cost associated with traditional payment methods, such as checks and wire transfers.

Access to information: In this day and age, data is oil. With the digitalisation of the public ecosystem, MSMEs will have access to resources and information that can help them gain insights and apply them to their businesses. MSMEs often operate in highly competitive markets with limited resources, so access to information can help them make informed decisions, develop new products and services, and improve their operations. This can also include online learning and development, SOPs, and access to market intelligence.

Efficiency and productivity: Digital infrastructure can help MSMEs improve their efficiency and productivity by automating routine tasks such as inventory management, invoicing, and record keeping. This can free up time for small business owners to focus on growing their businesses. MSMEs are already using digital marketing tools to reach a wider audience and improve customer engagement. Cloud-based solutions should be introduced to manage their business data, collaborate with remote teams, and access software applications without investing in expensive IT infrastructure. Analytics tools such as Google Analytics, Mixpanel, and Kissmetrics can also assist MSMEs to track website traffic, user behaviour, and marketing performance, among other metrics.

  • ‘MSME lending not about credit assessment only, but also merchant’s intent, credit risk, loan recovery’

Credit and finance for MSMEs: MSMEs are the backbone of any economy, accounting for a large portion of employment, production and exports in most countries. In fact, 33 per cent of India’s GDP comes from the MSME industry — this sector is also responsible for the generation of over 120 million jobs across various industries, all of which contribute to wealth creation.

It is therefore essential to ensure that these businesses have access to the financing and resources they need to grow and succeed. However, formal sources of credit only reach about 39 per cent of MSMEs, according to government data. This gap is caused not only by a lack of credit supply, but also because of the absence of easily available and accessible collateral-free sources of credit.

Fintechs & NBFCs: Simplifying borrowing for today’s MSMEs

Fintechs have revolutionized the lending process for SMEs. By leveraging technology, these companies are able to offer simple, easy-to-use services and highly competitive interest rates. This, combined with the lower overhead costs associated with online financing, makes fintechs an attractive option for MSMEs looking to access capital quickly. What’s more, in comparison to traditional banks and lenders, fintechs are also much faster in processing loan applications.

Payments data-based lending and the challenges associated with collections

Payment Aggregators are third-party services that act as a bridge between buyers and sellers in the financial technology space. In the simplest terms, they gather payment information from buyers and connect them to the seller’s payment processor or merchant account. In this model, merchants are aggregated across spectrums, right from a fish vendor on the street to a Ferrari showroom.

  1. While payment aggregators have merchant transaction data, through which they offer credit to merchants, the data is never exhaustive and/or exclusive. The same data is reflected in the bank statements of merchants and can easily be tampered with, as well.
  2. The number of daily transactions is not reflective of a merchant’s true business potential as cash and multiple payment services are quite often a norm.
  3. For payment aggregators, it’s hard to create one coherent policy that could service a roadside vendor to a large format retail store.
  4. Since large sums of money are already spent to acquire these merchants, some of the companies have tried to retrofit credit products in this space but it increases the risk beyond acceptable and profitable limits.
  5. A substantial number of acquired merchants for this segment are the long tail merchants who are roadside vendors or small stores, based on their transaction history and without complete credit assessment it is also hard to give them credit which can create a meaningful impact on their business.

Surrogate players and the need to maintain relationship with merchants

Companies offering physical products, business management solutions or solving for trade problems of SMEs, have also started to venture into lending to merchants with the purpose of scaling their business as:

  1. They have access to a part of the merchant data but it’s often only fractional and cannot be easily extrapolated to their business performance.
  2. In often cases, since lending is not their core business, they tend to write off a high number of loans to maintain healthy relationships with merchants.
  3. Based on the player category in this space, it has also been observed that merchants can tinker with data to create favourable lending lines.

Lending-first approach for the win

Despite numerous advances in the fintech sector, the lending-first approach remains unbeatable. This approach to financing involves lending decisions based on factors such as credit score, banking, GST, business performance, physical stock, transaction flow data, savings, network diversity and geographical patterns. By focusing on these factors, lenders can reduce the risk of default and ensure that borrowers are able to meet their obligations. This allows fintechs to provide reliable and safe financing options to MSMEs, providing them with the capital they need to succeed in the global market.

Moreover, the lending-first model allows for managing risk as:

  1. The credit-worthiness is observed in its entirety, just not transaction data or surrogate data
  2. Only those merchants/customers are on-boarded where there is upfront interest in availing credit, enabling for strong unit economics
  3. It has the ability to create specific products for each category or scale of merchant
  4. It allows for physical checks to ensure the data uploaded digitally reflects the true reality of the business on the ground
  5. Lastly, the business is robust for any changes in the market, policy, regulatory or app store changes.
  • FTP 2023 brings relief to MSMEs; liberalizes e-commerce & third-country trading

After a prolonged wait, Union Minister of Commerce & Industry, Piyush Goyal and Minister of State for Commerce & Industry, Anupriya Patel on Friday released the Foreign Trade Policy (FTP) 2023 in New Delhi.

Unlike previous policies which would be announced for five years the FTP 2023 comes without a five-year expiry date.

The new policy heralds a new era for e-commerce exports and third party trading. It also brings an amnesty scheme to resolve pending disputes of export obligations under EPCH scheme valid up to 30 September, 2023.

The FTP 2023 claims to stands on: Incentive to Tax remission; Export Promotion through collaboration with exporters with States and Districts; Trade Facilitation technology and automation and Focus on new emerging areas such as e-commerce, Districts as export hubs or exports under SCOMET framework.

The Micro, Small & Medium Enterprises (MSMEs) sector has welcomed substantial reduction in fees for Advance Authorization and EPCG licence form Rs 1 lakh to Rs 5000 only. 

Four MSME dominated towns have been declared as Town of export excellence namely Faridabad (Apparel); Moradabad (Handicrafts); Mirzapur (handmade carpet) and Varanasi (handloom and handicraft).

Exporters in these towns would be able to tap cluster based schemes and benefits under export promotion scheme such as EPCG.

In a major move, the FTP 2023 introduces a new chapter on e-commerce.

The value limit for courier exports has been increased from Rs 5 lakh to Rs 10 lakh and all FTP benefits have been extended to e-commerce.

Department of Commerce, Department of Post & CBIC are tasked to complete the processes in six months.

To further expand the logistics outreach, dak niryat kendras shall be operationalized in a hub and spoke model with Foreign Post offices.

With this expansion, artisans form small towns would be able to send their small export consignment from far flung areas.

Another new feature of the FTP is liberalization of merchanting trade. Third party country trading – buying from foreign country and supplying to third country without goods being brought to India, is allowed subject to compliance with RBI guidelines.

To further encourage self-certification and improve access to export support, the eligibility bar for status holder exporters has been lowered from Rs 25 crore to 15 crore for two star; from Rs 100 crore to Rs 50 crore for three star, from Rs 500 crore to Rs 200 crore for four star and finally from Rs 2000 crore to Rs 800 crore for five star status holders.

Export promotion at places emphasis on collaboration with states and district level. District are being prepared as Export Hubs and District Export Action Plans (DEAPs) are to be prepared to promote identified products and services.

  • State MSME dept to help organisers set up green firecrackers cluster

The state MSME department will extend all possible help to the organisation of green firecrackers to set up a cluster for production of the same in the state.

The cluster is likely to come up at Maheshtala area in South 24-Parganas, which is a hub of firecracker manufacturing and sale in the state.

State Environment minister Manas Bhunia, in the presence of senior officials of his department, held a meeting on Friday with officials of the state.

Fire and Emergency Services department in presence of its minister in-charge Sujit Bose with the objective to speed up the process of issuing production license and trade license to the manufacturers of green crackers across the state.

The department has come out with a guideline for green crackers which will be circulated among the manufacturing organisation of green crackers.

Scientists from NEERI who attended the meeting in virtual mode stated clearly that no green fire crackers will emit sound more than 90 decibel, which is the permissible limit for Bengal, as prescribed by the court.

“There are many poor cracker makers who do not have space (land) which is required for the manufacture of green crackers. So, we are planning to take up a cluster based approach so that these poor makers can be provided a common space,” a senior official of the Environment department said.

  • PM Modi has always urged for our women entrepreneurs, startups & MSME sector to be able to participate fairly & equitably in Govt procurement: Union Minister Piyush Goyal

Union Commerce Minister Piyush Goyal said that 2 lakh crores procurement by the Government within a single financial year 2022-2023 through the Government e-Marketplace truly reflects the thinking of Prime Minister Narendra Modi. He said, Prime Minister Narendra Modi is very demanding that Government has to be run with the highest integrity and transparency in participation by all across the country in government procurement.

He further said the Prime Minister has always urged for our women entrepreneurs, startups, and MSME sector to be able to participate fairly and equitably in Government procurement.

The Government e-Market – GeM portal was launched on the 9th of August, 2016, for online purchases of goods and services by all the Central Government Ministries and Departments.

  • Ambit Finvest, Bajaj Finserv Direct join hands for digital lending platform for MSMEs

Ambit Finvest has partnered with SKALEUP, the digital technology services arm of Bajaj Finserv Direct, to develop a D2C (direct-to-customer) instant loan application to give business loans to MSME business owners through a completely paperless and automated digital onboarding process.

“Through its API integrations with various tech-enabled and credit-related services and a unique rule engine-based decision-making process, the platform provides a seamless customer onboarding experience and ensures delivery of the maximum eligible loan amount in the shortest possible time without human intervention,” the company said in a release.

Ambit Finvest is the NBFC of the Ambit Group and has served over 50,000 MSME business owners and disbursed more than ₹3,500 crore in loans.

Bajaj Finserv Direct is a subsidiary of Bajaj Finserv. SKALEUP is the digital technology services arm of the company, and will enable platform development for Ambit Finvest.

“SKALEUP’s Creditech solution is a low-code/no-code digital platform that enables data-driven decisions.

This platform will enable Ambit Finvest to manage a broad range of processes and services, from digital journeys and multiple products to managing complex workflows involving sales, underwriting and operations,” Ashish Panchal, CEO of Bajaj Finserv Direct said.

PRESS RELEASE

GST on assignment of lease of land and building in SIDCs

MSMEs are getting disturbed with the action taken by GST department in some of the areas of MIDC in Maharashtra by giving summons and asking them to pay GST on the total value of the assignment of lease.

We have received representations from our member as well as affiliate associations from Gujarat, Madhya Pradesh, Punjab, Odisha and Tamil Nadu for the same alongwith associations from Maharashtra covering 289 MIDC areas from 36 districts of the State. So this is a pan India issue for all MSMEs having their factories taken on lease from State Industrial Development Corporations (SIDCs).

The intention of GST was also to reduce cost of production and inflation in the economy to make the industries competent domestically and internationally and to contribute for the growth of the economy. This was supposed to be ‘One nation one tax’ and even after subsuming all the State & Central tax, the GST rate was supposed to be equal or less than earlier regime. It should be noted that the assignment of lease also attracts 6% stamp duty in Maharashtra further adding to the over all tax liabilities.

During the Service Tax regime, assignment of lease was not treated as “service” for the reason that definition of term “service” under the erstwhile Finance Act, 1994 has excluded transfer of rights in immovable property. Unfortunately, in the CGST Act, the definition of the term “service” is kept very wide as well as use of phrase “sale of land” specifically restricts the scope of “supply of service” to include assignment of rights in leased land and thus taxable to 18% GST as per the department. Hence the basic spirit of the GST Act (not to increase the total subsumed tax burden) is done away with due to this situation.

Our Association argues that the activity of assignment of lease hold rights in land should also qualify as sale of land as all the rights in land and building and interest of a person are transferred to another person and therefore the same should fall in schedule III of the CGST Act with retrospective effect from 1st July, 2017.

Chamber of Small Industry Associations (COSIA) has taken up this issue with the Finance Minister of Maharashtra, the Union Finance Ministry and GST Council for consideration and clarification to save the MSMEs in this era of ease of doing business and Make in India.

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  • How we can help MSMEs?
  • Choose Best Business model
  • Choose suitable business form
  • to choose the most suitable source of funding
  • Claims / recovery matters filings
  • Agreement / contracts vetting & preparation
  • to approach financial institutions to get funds keeping in view their specific schemes.
  • Evaluate and compare the terms and conditions, including rate of interest and repayment period of loan offered by the different financial institutions
  • Select the financial institution, which offers funds at minimum interest rate as per Entrepreneurs repayment plans.
  • Arrange / Prepare set of documents as required for getting Loan.
  • Prepare application in prescribed proforma and has to be submitted along with project report including proof of ownership/availability of land/building, proof of residence, collateral securities (wherever applicable) etc.

Disclaimer: Every effort has been made to avoid errors or omissions in this material. In spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition. In no event the author shall be liable for any direct, indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information. Many sources have been considered including newspapers (ET, BS & HT etc.).

“Ideas are no one’s monopoly Think big, think fast, think ahead.”– Dhirubhai Ambani