Weekly E- Newsletter (The Friday Journal)

  • MSME in India

The MSME budget 2025 has brought about significant changes aimed at boosting this crucial sector of the economy. The MSME budget 2025 has emphasis on empowering and bolstering the Micro, Small, and Medium Enterprises sector.

The Union Budget 2025-26 announced several measures to support the Micro, Small, and Medium Enterprises (MSME) sector. These measures include:

Revised MSME Classification:

  • The government has significantly revised the MSME classification criteria by increasing both investment and turnover limits. This aims to bring more enterprises under the MSME umbrella, allowing them to benefit from government schemes.
  • Specifically, investment limits have been increased 2.5 times, and turnover limits have been doubled. This will allow more companies to qualify as MSMEs.

Increased Credit Access:

  • A major focus is on enhancing credit access for MSMEs. This includes increasing credit guarantee covers.
  • An increase in the credit guarantee cover for micro and small enterprises, enabling an additional amount of credit to be available.

Support for Startups:

  • The budget also emphasizes support for startups, with increased credit guarantees and the creation of new funds.

Simplification of Regulations:

  • There is also a focus on simplifying regulatory processes to improve the ease of doing business for MSMEs.

Credit guarantee cover

  • The credit guarantee cover for micro and small enterprises has increased from ₹5 crore to ₹10 crore. This is expected to provide an additional ₹1.5 lakh crore in credit over the next five years.

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

  • Our Special Corner
  • “Norms cover biz loans of individuals, MSMEs: RBI proposes zero foreclosure fee”

The RBI’s draft guidelines propose removing prepayment penalties on floating-rate loans for retail and MSME borrowers, offering more flexibility to switch lenders or prepay without penalties, currently at 4-5% for personal loans.

In a major move, the Reserve Bank of India (RBI) on Friday issued draft guidelines on loan prepayment penalties, proposing to remove foreclosure charges on floating-rate loans for retail and micro, small and medium enterprises (MSME) borrowers. The loans granted for business purposes to individual borrowers will also be free of prepayment penalties.The changes will enhance the flexibility for retail and MSME borrowers to switch to another lender offering better terms and allow them to prepay their floating-rate loans without facing costly penalties. At present, retail borrowers face a penalty of 4-5% on the outstanding principal for prepaying personal loans.”

Regulated entities (REs), other than Tier 1 and 2 primary (urban) co-operative banks and base layer NBFCs, shall not levy any charges/ penalties in case of foreclosure/ prepayment of floating rate loans granted to individuals and MSE borrowers, with or without co-obligant(s), for business purpose,” an RBI’s draft circular said.Lenders frequently use prepayment penalties to discourage borrowers from shifting to another institution. Typically, these charges are intended to compensate the lender for the loss of interest income due to early repayment.In the case of MSE borrowers, these instructions shall be applicable up to the aggregate sanctioned limit of Rs 7.50 crore per borrower, said the draft. (Source: Click Here)

  • 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.

  • “Schemes under export mission in the works, focus on MSMEs”

The government is thinking of filling a part of the gap between the value of the export receivable and the price at which it is acquired by factoring service providers.

Inter-ministerial consultations to finalise the schemes under the Export Promotion Mission will begin soon, a senior official said on Monday.

According to the official, a bulk of the allocation of Rs 2,250 crore for the mission will be utilised in the schemes to address export credit requirements of micro, small and medium enterprises (MSMEs) and to promote the use of alternative financing instruments like factoring.

For export financing, the government is looking at addressing the problem of high collateral many of the exporters face. The government is working on a mechanism to increase export credit without giving collateral or with reduced collateral.

The total export credit requirement for $437-billion exports in 2023-24 is $284 billion but only $124.7 billion is provided. The total export credit requirement is estimated at $650 billion in 2030 for exports of $1 trillion.

To help MSMEs deal with non-tariff barriers, the mission will consider reimbursing additional costs incurred by them for conformity assessment compliance relating to registration, testing, certification and inspection for organic, halal, electric goods, energy audit, and the European Union’s carbon tax and deforestation regulations. Support will also be provided for procurement of plant and machinery for complying with non-tariff measures and supply chain diversification like  procurement of alternative inputs to comply with the global standards such as permissible antibiotics and pesticides for farmers and fishermen. Source: Click Here

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

  • Trade Receivables Discounting System (TReDS) – Part 63

Trade Receivables electronic Discounting System (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. Businesses can leverage invoice discounting to quickly access funds tied up in outstanding invoices, effectively utilizing the value of their sales ledger. This practice, often referred to as bill discounting, has been refined over several decades.

Launched by the Reserve Bank of India (RBI) in 2018, TReDS serves as an electronic platform that allows MSMEs to quickly access financing with lower annual interest rates tailored for small businesses.

The primary aim of TReDS is to provide short-term finance to MSME sellers through invoice discounting against large corporations, thereby assisting them in effectively managing their working capital needs.

  • Boosting MSME Resilience: Strategies for Financial Stability

The extension of the TReDS (Trade Receivables Discounting System) mandate, with a lowered turnover threshold, is a significant move aimed at improving the financial health of MSMEs.

Understanding TReDS:

TReDS is an electronic platform that facilitates the financing of trade receivables of MSMEs. It allows MSMEs to discount their invoices and receive payments earlier than the scheduled due date. This helps them improve their cash flow and working capital management.

Key Changes and Impact:

  • Lowered Turnover Threshold:

The government has reduced the turnover threshold for companies required to register on the TReDS platform. Previously, the threshold was higher. Now, it has been lowered to ₹250 crore. This significantly expands the number of companies that must participate in the system.

  • Increased MSME Liquidity:

By bringing more companies into the TReDS framework, the government aims to ensure that MSMEs receive timely payments. This addresses the long-standing issue of delayed payments, which often creates cash flow problems for MSMEs.

  • Enhanced Financial Stability:

Improved liquidity translates to greater financial stability for MSMEs. This allows them to invest in growth, expand their operations, and create more jobs.

  • Greater Financial inclusion:

This action will bring many medium sized buisnesses into the TReDS system, thus increasing financial inclusion.

  • Mandatory Onboarding:

Businesses that fall within the new turnover threshold are now mandated to onboard the TReDS platform. This ensures that the system is used effectively and that MSMEs can fully benefit from its advantages.

  • Deadline: The onboarding process on the Trade Receivables Discounting System platforms shall be completed by 31st March, 2025.

The Indian government has taken a significant step towards bolstering the financial health of Micro, Small, and Medium Enterprises (MSMEs) by extending the Trade Receivables Discounting System (TReDS) mandate and significantly lowering the turnover threshold.

  • MSME Corporate News:
  1. FKCCI seeks land reservations and separate MSME policy in Karnataka Budget

Investment revival, infrastructure development, and a separate policy for micro, small and medium enterprises (MSMEs) were prominent points in the pre-state budget memorandum 2025-26 by the Federation of Karnataka Chambers of Commerce and Industry (FKCCI), submitted on Friday.

On the need for a separate MSME policy, they highlighted, “Micro units, which make up nearly 99 per cent of MSMEs, have a turnover of less than Rs 5 crore. This significant difference sets them apart from medium enterprises, which have a turnover up to Rs 250 crore and thus, they should not be categorised together.”

They further asked for a state-specific procurement policy for sourcing products and services from MSME enterprises located in Karnataka by state government departments, similar to the Central Government’s policy.

Further interest subsidies were also sought, along with an exemption of 9 per cent electricity tax for industrial consumers, particularly MSMEs.

There were also asks for further lowering the Agricultural Produce Market Committee (APMC) cess from the existing 0.6 per cent, as well as modernising APMC Yard with improved infrastructure.

The body highlighted the high number of compliances burdening industrialists. As per their statement, “Many of these compliances to be met periodically are out of date and redundant. The present need requires changes by removing the redundant compliances and simplifying them to suit the present industrial reality.” (To read more – Click Here)

  • How India’s MSME policy for businesses is enabling financial help and digitisation

The rapidly evolving Indian SME market holds significant potential, driven by the growth of the Indian economy and the increasing adoption of e-paper workflows and digital services. As SMEs in India embrace new technologies and transition their processes to the cloud, daily operations are becoming more streamlined, allowing businesses to concentrate on expansion. Furthermore, the ongoing digitisation of government services, coupled with initiatives focused on SMB growth, is enhancing the efficiency of B2G and G2B interactions, further contributing to the sector’s promising future.

Under the Atmanirbhar Bharat Abhiyaan (Self-Reliant India) campaign, the micro, small, and medium-sized Enterprises (MSMEs) contributed around 30 per cent to the GDP in the year 2021–2022 and employed over 11 crore persons in India during the same period. The rapidness in growth has made MSMEs the backbone of the Indian economy.

India’s MSME landscape

India’s MSME is an ever-evolving sector that includes a wide range of industries, from old-school crafts to high-tech startups. The number of MSMEs in the country is expected to grow from 6.3 crore, to ~7.5 crore in the coming times, growing at a projected CAGR of 2.5 per cent. This growth has boosted both local demand and export opportunities, playing a significant role in driving India’s economy forward.

Positive aspects of MSMEs in India

Over the years, India’s MSME policy has evolved significantly, demonstrating a commitment to enhancing the sector’s capabilities and competitiveness. Key positive aspects include:

1. Improved financial support

Traditionally, MSMEs struggled to secure financial support due to limited credit from banks and high collateral requirements. New programs like the Credit Guarantee Fund Scheme (CGS) and the Pradhan Mantri Mudra Yojana (PMMY) have transformed this landscape. CGS has guaranteed loans worth over ₹5.5 lakh crore, assisting more than 1.5 crore MSMEs in obtaining credit. PMMY has approved loans exceeding ₹6.5 lakh crore, benefiting 40 million businesses.

2. Simplified registration and compliance

Previously, MSME registration and compliance involved excessive red tape. The Udyam Registration Portal has streamlined this process, with over 7 million MSMEs now registered. This simplification reduces unnecessary paperwork and facilitates access to various government schemes and subsidies.

3. Sector-specific support

Earlier policies often lacked the detail needed to address the unique needs of different MSME sectors. New policies have introduced focused support programs. The Stand Up India Scheme provides loans to SC/ST and women entrepreneurs, while the Production Linked Incentive (PLI) Scheme boosts manufacturing and exports.

Comparison to global MSME policies

When compared to global MSME policies, India’s approach exhibits both unique strengths and commonalities with other economies. The European Union, for instance, places a strong emphasis on fostering innovation and research by offering substantial grants and subsidies through programs like Horizon Europe. This initiative is designed to support small businesses in developing cutting-edge solutions, making them more competitive in the global market. In contrast, India prioritizes financial inclusion for microenterprises through initiatives like the MUDRA scheme, ensuring that even the smallest businesses have access to credit and growth opportunities.

Similarly, in the United States, the government provides loan guarantees and grants via the U.S. Small Business Administration (SBA), which functions similarly to India’s Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). While both countries focus on enabling financial support for MSMEs, India’s unique strength lies in the extensive reach of the MUDRA scheme, which provides micro-financing at a scale that has no direct parallel in the U.S. This initiative has been instrumental in empowering small entrepreneurs, particularly in rural and semi-urban areas, where access to formal credit was previously limited.

In fact, cloud-based SaaS solutions offer numerous advantages, including saving time, money, and human resources, securely managing large volumes of data, and providing remote access from anywhere. These solutions also automate routine tasks, freeing up time for strategic planning, and reduce entry barriers for small and family-owned businesses. As cloud software becomes more affordable, it is rapidly becoming a widely accessible tool for businesses of all sizes.

Growth outlook

The future is poised to favor small entrepreneurs in both the manufacturing and service sectors. This outlook encompasses the expansion of established companies as well as the emergence of new startups. Growth is expected in complex manufacturing businesses and service-oriented enterprises like quick commerce.

Additionally, there is significant growth in outsourcing companies that supply IT specialists for global project work, along with accounting firms, reflecting a broader shift towards specialised service industries.

As the MSME landscape continues to grow, driven by technological adoption and government policies, it is poised to remain a key contributor to India’s economy, supporting both local demand and global export opportunities. Read more – Click Here

  • What is new Mutual Credit Guarantee Scheme for MSMEs? Key FAQs answered

The Mutual Credit Guarantee Scheme (MCGS) for MSMEs announced in the July budget last year was launched by Finance Minister Nirmala Sitharaman on Monday. The scheme aims to enable up to Rs 100 crore collateral-free loans for MSMEs to purchase machinery or equipment. The MCGS scheme adds to the government’s initiatives, specifically around providing affordable access to credit for MSMEs. 

Managed by the National Credit Guarantee Trustee Company (NCGTC), a wholly owned company of the Department of Financial Services, Ministry of Finance, the scheme will provide term loans to MSMEs with interest rate charged as per the RBI (Reserve Bank of India) guidelines and board approved policy of the lender.

Here are the key FAQs answered about the scheme:

  • Who are eligible borrowers for the scheme?

MSMEs looking to get loans under the scheme; first should have an Udyam registration number; second, should not be an NPA (non-performing asset) with any lender; and third, the minimum cost of equipment or machinery should be 75 per cent of the project cost. 

  • Can MSMEs raise loans for existing units? 

MSMEs can raise loans under the scheme for their existing as well as new projects or units, subject to meeting of eligibility parameters. While the loan amount can be over Rs 100 crore, the guarantee cover would be limited to Rs 100 crore only. 

  • What kind of business activities are covered under the scheme? 

All business activities can be covered under the scheme. There is no specific list of activities not covered under the scheme. 

  • Will banks or other lenders charge processing fees to sanction loans under the scheme? 

While there is no stipulation under the scheme for lender to charge processing fees, they can decide on the same as per their internal guidelines. 

  • Is there any upfront contribution to the loan?

5 per cent of the loan amount up to Rs 5 crore has to be deposited with the NCGTC as an upfront contribution at the time of application of guarantee cover. For loans exceeding Rs 100 crore, there would be two different repayment schedules: one for Rs 100 crore loan and two, for balance loan amount. 

  • What is the guarantee cover?

Guarantee cover refers to the maximum cover available per loan borrower of the amount with respect to the loan given by the bank. Under the MCGS scheme, the guarantee cover is 60 per cent of the loan and start from the date of payment of the guarantee fee or the date of the first disbursement of loan under the scheme, whichever is later.

==================================================================