The growth of Micro, Small, and Medium Enterprises (MSMEs) is a crucial aspect of India’s economic development. MSMEs play a significant role in generating employment, promoting entrepreneurship, fostering innovation, and contributing to the country’s GDP. The introduction of the Micro, Small and Medium Enterprises Development (MSMED) Act in 2006 provided a legal framework for the promotion, development, and enhancement of competitiveness of MSMEs.

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

  • MSME Registration:

Udyam Registration Portal

Except this portal of Government of India and Government’s Single Window Systems, no other private online or offline system, service, agency or person is authorized or entitled to do MSME Registration or undertake any of the activity related with the process.

Udyog Aadhar Memorandum, one page online registration portal for registering Micro, Small and Medium enterprises has been replaced by Udyam Registration Portal (https://udyamregistration.gov.in) for incorporating MSME.

Income Tax related provisions while taking registration:

  • The calculation of investment in plant and machinery or equipment has been linked to the Income Tax Return (ITR) of the previous years, filed under the Income Tax Act, 1961.
  • A new enterprise where no ITR is available, a self-declaration of the promoter of the enterprise regarding the investment and such relaxation shall end after the 31st March of the financial year in which it files its first ITR.
  • Exports of goods or services or both, shall be excluded while calculating the turnover of any enterprise whether micro, small or medium, for the purposes of classification.
  • Information as regards turnover and exports turnover for an enterprise shall be linked to the Income Tax Act or the Central Goods and Services Act (CGST Act) and the GSTIN.

Our Special Corner

  • Retail and Wholesale Trade under MSMEs

The Government has included Retail and Wholesale Trade under the Micro Small and Medium Enterprises (MSMEs) category from July 2, 2021and making them eligible for priority sector advances by banks and financial institutions per RBI guidelines.

“The government has received various representations and it has been decided to include retail and wholesale trades as MSMEs, and they are allowed to be registered on the Udyam Registration portal. However, benefits to retail and wholesale trade MSMEs are to be restricted to priority sector lending only.”

The beneficiary segments of the change in norm would be wholesale and retail trade and repair of motor vehicles and motorcycles, wholesale trade except of motor vehicles and motorcycles and retail trade except of motor vehicles and motorcycles. Retailers and wholesalers will now be able to register on the Centre’s Udyam portal for MSMEs.

Retail and wholesale trade were left out of the ambit of MSME earlier, now under the revised guidelines, retail and wholesale trade will also get benefit of priority sector lending under RBI guideline.

  • Source: Release ID: 1732193
  • MSME Schemes:

The government has introduced many schemes to encourage the micro and small industries. Through many schemes, 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 “Credit Guarantee Scheme for Subordinate Debt (CGSSD) for Stressed MSMEs”

Objective:

  • Subordinate debt will provide a substantial help in sustaining and reviving the MSMEs which have either become NPA or are on the brink of becoming NPA.
    • Promoter(s) may infuse this amount in MSME unit as equity and thereby enhance the liquidity and maintain debt-equity ratio.
    • In a situation, where an outright loan is difficult, sub-debt with guarantee will provide the requisite financing to the MSME Units.

KEY Benefits

  • Promoter(s) of the MSMEs are given credit equal to 50% of their stake (equity plus debt) or Rs. 75 lakh whichever is lower

Scheme applicable for:

This Scheme seeks to extend support to the promoter(s) of the operational MSMEs which are stressed and have become NPA as on 30th April, 2020 and standard as on 01th November, 2016.

About the SCheme

  • Promoter(s) of the MSMEs are given credit equal to 50% of their stake (equity plus debt) or Rs. 75 lakh whichever is lower.
  • The maximum tenor for repayment is 10 years. There is a moratorium of 7 years on payment of principal.
  • Guarantee for the sub-debt: 90% guarantee coverage comes from the scheme / trust and remaining 10% from the promoter(s) concerned.

How to Apply:

MSMEs meeting the eligibility criteria may approach eligible Banks. Loan lending bank branch, CEO, CGTMSE, SIDBI, Swavalamban Bhavan, C-11, G-Block, BKC, Bandra (East), Mumbai 400051.  

To apply, please visit, Source: Click Here

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

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  • Trade Receivables Discounting System (TReDS) – Part 9

Trade Receivables Discounting System (TReDS) is a digital platform for MSMEs to auction their trade receivables at competitive rates through online bidding by Financiers i.e Banks. It is a source for lower cost of financing as financing is based on buyer’s credit profile.

  • TReDS platform operators welcome RBI’s directive to ease MSME invoice discounting, boost liquidity

Four months after proposing the participation of insurance companies on the Trade Receivables Discounting System (TReDS) to encourage financing of invoices of buyers irrespective of their credit ratings, the Reserve Bank of India (RBI) on Wednesday issued a directive to TReDS operators and participants to facilitate insurance for transactions.

“Financiers place their bids on the TReDS platforms keeping in view the credit rating of buyers. They are generally not inclined to bid for payables of low-rated buyers. To overcome this, an insurance facility is being permitted for TReDS transactions, which would aid financiers to hedge default risks,” RBI said in a notification.

“This is where insurance companies will come in and after their due diligence about the buyer and the industry they are in, will provide the coverage. Depending on the risk they are undertaking, the premium will change,” Ketan Gaikwad, Managing Director and CEO, RXIL told FE Aspire. RXIL is among the four TReDS operators –M1xchange, Invoicemart and C2FO licensed by the RBI.

According to M1xchange’s Chief Executive Officer Sundeep Mohindru, the decision by RBI opens up a big market opportunity around trade credit insurance for insurance companies. “Moreover, with the growing number of buyers and sellers getting on TReDS platforms for invoice discounting, insurance companies don’t have to set up their sales structure to get business out of it.”

The RBI also said that all entities eligible to do factoring business under the Factoring Regulation Act will be permitted to participate as financiers on TReDS as TReDS transactions fall under the ambit of factoring business.

On an average, 17 per cent of invoices uploaded on TReDS platforms are not financed. For such invoices, buyers have to pay MSME sellers outside the TReDS system, as per TReDS guidelines, according to RBI. However, with the latest amendment to guidelines, the central bank allowed TReDS platform operators to undertake the settlement of all invoices using the NACH mechanism on the platform itself.

Lastly, the RBI directed TReDS platforms to display details of bids by financiers for an invoice to other bidders also on the platform except for the name of the bidder to enhance transparency in the bidding process.  

TReDS had financed 54.56 lakh invoices involving Rs 1.42 lakh crore till February 2023, Bhagwat Karad, minister of state in the finance ministry had informed Lok Sabha in a written reply to a question in March this year.

  • MSME Corporate News:
  1. MSME sector has bounced back, repayments normal: Sidbi CMD Ramann

Micro, small and medium enterprises (MSMEs) are on the road to revival. In the smaller units, which employ a limited number of people, bad loans have gone down. In the micro segment, the total loan exposure is less than Rs 5 crore.

Small Industries Development Bank of India (Sidbi), the biggest lender in the small and medium enterprises (SME) segment, believes that the damage to the financial system would be a lot less than expected. This is because revival in the post-Covid economy showed no spike in defaults in government-guaranteed loans. The lender is leveraging the technology platforms from NSEL portal to goods and services (GST).

  • From new classification to a separate division in the Ministry, India’s micro-MSMEs need differentiated support

Did you know that 99% of India’s 63 million micro-small-medium enterprises (MSMEs) are micro-MSMEs? In 2007, the Ministry of Micro, Small and Medium Enterprises (MSMEs) was created to better serve the needs of the MSME sector, which contributes to 30% of India’s GDP and nearly 50% of India’s exports. As India aims to become a $5 trillion economy by 2026, it has never been more critical than now to expand support to the MSME sector, and particularly provide differentiated support for micro-MSMEs.

Institute new classification

Micro-MSMEs are categorised as having less than Rs. 5 crores in turnover, however, over half of micro-MSMEs have less than Rs. 50 lakhs in turnover with 2-3 workers, often family members. These types of outfits must have policies supporting their needs that do not equate them to the regulations applicable for a nearly 5 crore type of a business.

This sub-categorisation would differentiate micro enterprises based on their specific industries, such as manufacturers, ancillary units, exporters, and service providers. This approach would enable the development of targeted incentive packages and support measures tailored to the distinct needs of each sub-category and drive last-mile financial inclusion of aspiring local entrepreneurs.

Increase formalisation

Micro-MSMEs lack the administrative bandwidth and resources to navigate complex regulatory frameworks. With over 90% of the MSME sector in the informal category, most of the micro-enterprises are unable to access formal credit or other government schemes or benefits. Udyam Registration is a positive initiative in this regard with more than 13 lakh informal micro-enterprises that have now become formalised and there is room to expand this broadly across the MSME sector.

Initiate support for women-owned MSMEs

With only 18% of registered MSMEs that are women-owned, there is vast unrecognised potential remaining untapped due to systemic gender discrimination. Majority of women entrepreneurs remain in micro-MSME strata and over 3,057 women-owned MSMEs closed post-pandemic. Implementing policies that promote women entrepreneurship and provide dedicated support, such as access to capital, training, and networking opportunities, will empower women-led micro MSMEs and contribute to inclusive economic growth.

Introduce separate micro-MSME division

Recognising the need for a more targeted approach, the recent suggestion by the parliamentary panel to establish a separate Division for micro-enterprises within the MSME ministry is a welcome development. This Division will focus on the unique needs faced by micro-enterprises, enabling them to access specialised support and services. The panel emphasised the need for targeted support and policies to help micro enterprises grow and eventually transition into small and medium enterprises, contributing to the overall strengthening of the MSME sector.

  • Rethinking digital solutions for the Indian MSME sector

If there is one sector that has faced the highest degree of disruption in recent years, it is the Micro, Small and Medium Enterprises (MSMEs). The last few years have posed an existential crisis for many small enterprises around the world. Yet, they continue to create jobs as well as support urban and rural economies. The scope and scale of the contribution of these enterprises to a country’s economy and its people can be understood from a World Bank estimate, which suggests that SMEs represent about 90% of businesses and more than 50% of employment worldwide. Further, they are likely to play a pivotal role in addressing the need for creating 600 million new jobs by 2030 to absorb the growing workforce. In India, these enterprises contribute to over 30% of Gross Domestic Product (GDP) and employ over 110 million people.

Over the years, the central and state governments have proactively worked to secure and strengthen MSMEs. They were quick to come to the aid of the sector as it grappled with the twin challenges of cash flow crunch and demand downturn during the COVID period. From introducing a revised criteria for classification of MSMEs, providing collateral-free loans, to infusing equity into the sector, the government checked all boxes. This was one of the reasons why the Indian economy could bounce back in record time.

Moving to 2023, in an increasingly digital economy, the MSME sector will have to ride on the digitisation wave to scale and stay competitive. So, what will it take for the sector to digitise operations, including their forward and backward linkages?

Relevant and reliable solutions to enhance ROI

While there is no dearth of digital tools, platforms, and solutions for MSMEs, often, they don’t find takers or do not yield the desired outcomes. That’s because these offerings fail the key return on investment (ROI) criteria. A majority of micro and small units in Tier II and III cities in India do not have the resources to invest in modern technology that enhances business returns. The government has already addressed a large part of this problem by building a robust digital public infrastructure, and the onus is now on fintechs and other technology providers to leverage that infrastructure and build solutions that are affordable and highly valuable for users.

Global effort to empower MSMEs

Some of the issues raised in this article will take prominence at various G20 and B20 meetings involving government functionaries and business leaders, who will deliberate on ways to fuel growth by empowering MSMEs. With India holding the G20 Presidency, the stage is set for the country to present a model of global partnerships that have tasks cut out for every stakeholder; the government creates infrastructure, the tech industry uses it to build solutions, and social organisations take those solutions to the grassroots and train enterprises in using them.

At Mastercard, we have partnered with various industry bodies, such as the Confederation of All India Traders (CAIT) and the Confederation of Indian Industry (CII), to train over 2.5 million small merchants across the country in adopting digital payment solutions. In line with the government’s various digitisation initiatives, such as the Udyam portal, Government e-Marketplace (GeM), as well as Trade Receivables Discounting System (TReDS), we will continue to explore and adopt new ways to digitally empower the MSME sector.

At a time when the global economy battles with multiple crises and impending uncertainties, a collective and comprehensive effort to strengthen the MSME sector can power economies and empower societies, thereby taking us closer to achieving the goal of sustainable development for everyone, everywhere.

  • Piyush Goyal meets bankers on export credit to MSME exporters aiming to achieve $1 trillion merchandise exports

NEW DELHI: Minister of Commerce and Industry Piyush Goyal on Wednesday urged Indian banks to provide MSMEs with improved and inexpensive loans in order to meet the aim of 1 trillion dollars in product exports.

“Piyush Goyal has asked the Indian banks to ensure enhanced and affordable credit to MSMEs to achieve the target of 1 trillion dollar merchandise exports,” read the Ministry of Commerce & Industry press release.

According to the official statement, the meeting was convened by the Department of Commerce in coordination with Export Credit Guarantee Corporation Limited, (ECGC) in New Delhi.

The meeting was attended by the top officials of 21 banks which included the State Bank of India, Bank of Baroda, Punjab National Bank, Canara Bank, Union Bank of India, Bank of India and Central Bank of India, said the official statement.

A presentation on ‘Export Credit and Export Credit Insurance for Banks (ECIB)’ was prepared by CMD ECGC, M Senthilnathan, it added.

According to the official statement, ECGC has now proposed additional improvements to provide adequate and affordable financing to a larger variety of MSME exporters based on its experience with the extended coverage plan.

The product facilitates the borrower accounts to be treated equivalent to ‘AA-rated accounts with reduced cost of export credit to the exporters, it further added.

The Union Minister also advised ECGC to examine 75 per cent of claim payments to banks under the ECIB scheme, within 45 days of receiving the claim, said the official statement. (To read more – Click Here)

  • UP govt set to begin insurance plan for MSME entrepreneurs

The UP cabinet on Wednesday approved the ‘Chief minister’s micro entrepreneur accident insurance scheme’. Under the scheme, small entrepreneurs will get financial assistance of up to Rs 5 lakh in case of death or disability.

Finance minister Suresh Khanna said that in case of partial disability, the relief amount will be given according to the percentage of disability as mentioned in the disability certificate issued by a chief medical officer.

“Micro category entrepreneurs aged between 18 and 60 years can apply for the insurance scheme. Micro entrepreneurs, who are not eligible for the traders accident insurance scheme run by the GST department, can benefit immensely from this scheme,” Khanna said.

The benefit of this scheme can only be enjoyed by those who are formally registered with the government. The minister said that only about 15% of the state’s MSME units are formally registered on the Udyam registration portal and 85% of the units are working informally.

Since registration on the Udyam portal is not mandatory, data of such units is not available, making it highly difficult to formulate any policy for the sector.

The economic contribution of the MSME sector is also not reflected in any official data. He said that due to such schemes, the government hoped that more and more people would decide to get registered. Under the scheme, if an entrepreneur is in an accident, his or her family will first apply for aid through the online system.

Then a copy of all the forms and documents will have to be submitted to the deputy commissioner of industries of the district concerned. After receiving the recommendation of the claim amount from the deputy commissioner, industries, the insurance amount will be made available through direct benefit transfer within a maximum of one month to the nominated heir of the entrepreneur. This will be issued from the directorate level, as per the prescribed procedure.

He has contributed in ICAI, ICSI and MCCI and other various Newsletters. He is also a speaker at various platforms including seminars / webinars.