Latest Developments and Schemes in India’s MSME Sector
MSME सक्षम – The Friday Journal

“MSME सक्षम – The Friday Journal” This Weekly E- Newsletter (The Friday Journal) aims to increase awareness regarding various news / updated and activities that have been taken place for the MSMEs and to provide information about the various schemes and programmes along with latest updations from time to time. It is a digital tool used to share relevant and valuable information with the Readers. MSMEs are an important sector for the Indian economy and have contributed immensely to the country’s socio-economic development. MSMEs produce and manufacture a variety of products for both domestic as well as international markets. MSMEs have played an essential role in providing employment opportunities. MSMEs have driven India to new heights through requirements of low investment, flexible operations, and the capacity to develop appropriate native technology. This newsletter has been released with an aim to educate MSMEs on various facets of business development.

  • MSME in India

The Ministry of Micro, Small and Medium Enterprises implements various schemes for the growth and development of MSME sector in the country in areas of credit support, new enterprise development, formalization, technological assistance, infrastructure development, skill development and training and market assistance to MSMEs.

The schemes/programmes inter alia include Prime Minister’s Employment Generation Programme (PMEGP), Credit Guarantee Scheme for Micro and Small Enterprises (CGTMSE), Micro and Small Enterprises-Cluster Development Programme (MSE-CDP), Entrepreneurship Skill Development Programme (ESDP), Procurement and Marketing Support Scheme (PMS) and National SC/ST Hub (NSSH).

The Micro, Small, and Medium Enterprises (MSME) sector in India has continued to demonstrate resilience and growth.

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

Our Special Corner

  • ‘MSMEs demand centralised, single window system for licences and registration’

Sections of MSMEs working across multiple states are petitioning the Union government to come up with a single window compliance and registration system, freeing them from the burden of registering for shop and trade licences as per each states’ rules.

Every state has different rules for minimum wages, working hours and for registration, Belgaum Chamber of Commerce and Industry (CCI) president Hemendra Porwal told ET. “In some states, trade and shop licences are perpetual. In others, they have to be renewed every year, or every three years, making it difficult for companies with presences in multiple states to comply,” he said.

MSME rules, he added, should be centrally applied as most of the benefits come from the Centre anyway. “If the competition between the states is reduced, the country as a whole would progress much faster in this aspect,” he said.

The actual number is much higher, Pratik Vaidya, president of the Maharashtra chapter of the SME forum, told ET. Without a single window registration system, most enterprises do not register and they are left out of the many benefits the government has for MSMEs, including collateral free-loans, reservation in government procurement, exemption from having to pay Earnest Money Deposits (EMD) while competing for government tenders, the MD of Karma Management Global Consulting Solutions said.

  • 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 “‘RBI S2S Financing: Transforming MSMEs in Supply Chain Finance”

Supply Chain Financing, also known as SCF has become very popular over the last few years while positively impacting the business transaction between the suppliers and the corporates. According to a report, the Indian supply chain finance market size is expected to grow at a CAGR of 8.42% during the forecast period between 2023 and 2029. However, conventional supply chain financing (SCF) predominantly serves large corporations and their immediate suppliers, leaving smaller players in the lower tiers of the supply chain in need of quicker capital infusion. This is where the recent RBI-approved solution small-to-small (S2S) financing can be a game-changer as it goes beyond traditional SCF, effectively bridging the credit gap faced by Tier 2 and Tier 3 MSMEs, empowering them to sustain and grow their businesses.

Challenges faced by MSMEs

Access to finance has always been a significant challenge for the MSME sector. Despite their pivotal role in the supply chain, the smaller businesses often face difficulties in securing funding. Existing methods neglect SMEs despite their prominent economic role. Reasons include lack of collateral, lower credit ratings, and financial instability. Economic disruptions, such as the COVID-19 pandemic, exacerbated these challenges, underscoring the need to fortify supply chains against potential disruptions and empower these SMEs.

Expanding Coverage of TReDS

TReDS in its current avatar serves MSME suppliers of large corporates. The banks are taking a risk call on the customers of these MSME suppliers and providing finance against the receivables of suppliers.

This model of S2S is expanding the boundary of coverage to include MSME suppliers of MSME Buyers. These buyers are not rated enterprises and therefore do not avail supply chain finance limits for financing their MSME suppliers. The model offers twin benefits to the MSME suppliers:

  • Financing of their receivables from large enterprises.
  • Financing of their purchases from other MSME suppliers.

 This process is making them self-sufficient in financing their business needs using the SCF mechanism and getting away from limitations of collateral and past year financials.

What is small-to-small financing and how does it work?

S2S financing is a one-stop plug and play solution for cash-flow based financing to small MSME sellers. MSME buyers lack balance sheet strength, and this new model enables cash flow-based credit analytics for MSME buyers instead of the traditional approach of balance sheet-based risk assessment. Enabled through a credit analytics engine (CAE), the model offers digital credit assessment of MSMEs that leverages data available from multiple online data sources such as bank statements, GSTN, TReDS transaction data, etc. This CAE also enables banks to follow a programmatic approach to credit decisioning as per business rules permitted under the respective bank’s internal approved risk policies.

As the credit limits get sanctioned to MSME buyers from banks, they can utilise this credit to make early payment to their sellers and in turn manage to get better pricing for their purchase. This enables the MSMEs reduce their cost of business and thus emerge competitive. This also benefits the MSME sellers as they are able to realise their dues faster and in turn meet their working capital needs.

Revolutionizing MSME Financing in the Digital Era

The increasing demand for SCF has proven difficult for banks and other traditional financiers to meet owing to the high-risk factor. Technology becomes a great way to solve such roadblocks. For instance, during the 12-month pilot in RBI’s 3rd regulatory sandbox for MSME lending, we created and leveraged a credit analytics engine to analyse the health of SMEs for over five participating banks. The analysis helped identify over 50 data points based on MSME’s cash flow statements that enable financial institutions take a credit call with deeper confidence.

The Future of S2S Financing:

S2S financing is becoming a critical tool for businesses to manage their supply chains, improve their financial performance, and address the credit gap for Tier 2 and Tier 3 MSMEs. This inclusive approach offers a win-win situation for both suppliers and buyers, ensuring stable cash flows and reducing the risk of disruptions in the domestic and global supply chains.

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

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  • Trade Receivables Discounting System (TReDS) – Part 28

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.

“Mastercard partners with M1xchange to offer invoice discounting solution to agri-MSMEs, FPOs

Payments company Mastercard on Thursday announced its collaboration with one of the Reserve Bank of India-licensed TReDs platform M1xchange to offer invoice discounting solution to farmers, farmer producer organizations (FPOs), and agri-MSMEs through its agritech platform Farm Pass. The digital platform allows credit and working capital access along with connecting farmers and farmer producer organisations (FPOs) directly with buyers, negotiating the best price for their produce and getting paid.

As part of the collaboration, M1xchange will bring on board its network of agri-businesses and lenders. Sundeep Mohindru, CEO, M1xchange, said the large network of financiers on M1xchange will enhance liquidity flow for buyers and sellers on the Farm Pass platform.

“TReDS offers a unique proposition that discounts invoices raised by FPOs for their end customers based on their credit profile. This makes FPO business scalable as their dependence on credit for working capital financing is removed through invoice discounting.  All FPOs registered on Farm Pass will get instant access to a network of more than 55 banks and NBFCs via M1xchange,” said Mohindru in a statement.

Through credit access by invoice discounting, FPOs will have working capital to purchase goods from farmers and sell them to buyers at the best price with instant payment. “This will help start a self-sustaining cycle for the FPOs, resulting in self-sufficiency over the medium to long term.”

To address this issue by financing trade receivables from corporate and other buyers including government departments and public sector units through multiple financiers, the central bank had introduced TReDS back in 2014. As of February 2023, 54.56 lakh invoices involving Rs 1.42 lakh crore were financed by TReDS platforms, according to the data shared by Bhagwat Karad, minister of state in the finance ministry informed Lok Sabha in a written reply to a question in March.

  • MSME Corporate News:
  1. India Exim Bank and Ministry of MSME Launch Trade Portal

The Export-Import Bank of India (Exim Bank) and the Ministry of Micro, Small and Medium Enterprises (MSME) signed an MoU for the development and launch of Exim Mitra 2.0 – a trade facilitation and information portal to empower Indian exporters, particularly those in the MSME sector. The MoU was signed by Dr. Rajneesh, Additional Secretary & Development Commissioner, Ministry of MSME and Ms. Harsha Bangari, Managing Director, Exim Bank, in the presence of Shri Narayan Rane, Hon’ble Union Minister for MSME, Govt. of India and Shri Rakesh Sachan, Hon’ble Minister of MSME, Khadi and Village Industries, Sericulture Industries, Handloom and textiles, Govt. of Uttar Pradesh, during the inauguration ceremony of technology centres on 14th February 2024 at Greater Noida.

This collaboration builds upon Exim Bank’s trade facilitation and information portal, ‘Exim Mitra’, which is an effective, single point of access for a wide range of trade-related information, handholding, and support services for Indian companies seeking to tap the export markets. Exim Bank is in the process of developing a new and improved Exim Mitra 2.0 portal and mobile application. Alongside, the Ministry of MSME is also conceptualising a Global Market Intelligence System (GMIS) to act as a Central Knowledge Repository of export related data on foreign markets to enhance the participation of Indian MSMEs in the global value chain. Recognising the complementarities between Exim Mitra 2.0 and the GMIS, the Ministry of MSME and Exim Bank are collaborating for a unified portal. The MoU paves the way for Exim Bank to access and utilise the Udyam Registration data from the Ministry of MSME, for personalising the content and resources on the Exim Mitra 2.0 portal and mobile app for registered Udyam users. Leveraging the synergies from the partnership, Exim Mitra 2.0 will offer improved functionality, greater resources, and curated content for existing and aspiring exporters.

The collaboration capitalises on the strengths of Exim Bank and the Ministry of MSME for bridging the information gaps in exports ecosystem. Exim Bank’s four decades of experience in financing, facilitating and promoting exports from the country and its institutional linkages, coupled with the comprehensive databases of the Ministry of MSME, would unlock invaluable resources for existing and aspiring exporters, thereby contributing to India’s ambition of achieving US$ 2 trillion of exports by 2030.

  • J&K at the top in providing employment under PMEGP for last two years: MSME Minister Narayan Rane

Developmental efforts in Jammu and Kashmir (J&K) post abrogation of Article 370 from the union territory in 2019 have led to the generation of employment opportunities under the centre’s PMEGP scheme, said MSME Minister Narayan Rane. The minister said J&K has been at the top in enabling employment opportunities under the scheme in the last two years.

“After the removal of Article 370, there has been an unprecedented pace in the development of Jammu and Kashmir. Today, the result of this is that under the able leadership of the respected Prime Minister Shri @narendramodi ji, Jammu and Kashmir is at the top in providing employment through PMEGP-scheme for the last 02 years,” Rane tweeted on X on Tuesday.

Prime Minister Narendra Modi visited J&K on Tuesday to inaugurate and lay the foundation stone of multiple development projects worth over Rs 32,000 crore related to sectors including health, education, rail, road, aviation, petroleum, civic infrastructure, etc.

According to the data on the MSME Ministry’s Dashboard, as of Wednesday in the current financial year, 22,050 units have been assisted which have led to 1.76 lakh employment opportunities across India. Units in J&K assisted under the PMEGP scheme led the employment tally with 29,808 followed by 26,152 in Uttar Pradesh, 18,312 in Bihar, and 12,408 in Tamil Nadu.

  • Andhra Pradesh government’s MSME initiatives commended

Secretary to the Ministry of Micro Small Medium Enterprises (MoMSME) Subhas Chandra Lal Das has visited Andhra Pradesh and appreciated the State government for prioritising MSMEs in its development agenda.

He commended the activities and focus of Andhra Pradesh in driving schemes including PMEGP, PM Vishwakarma Yojana and other skill training programmes.

Secretary (Industries) N Yuvaraj has briefed the team from MoMSME, about various initiatives taken by the State government over the last 5 years for MSMEs and MSME ecosystem development.

While highlighting the Industrial Development policy 2023 – 27, which has provided reservation of 33 per cent of land in new industrial parks, reserved for MSME units, Yuvaraj said that an order has been issued encouraging the minimum share of State government procurement to be sourced from MSME sector.

Furthermore, six CFCs, 17 lDs and four FFCs which received approval from the Centre are in progress, he said adding that the State government is working towards the target of creating 55 CFCs, 100 lD projects by 2027. He said that of all the land allotments approved by the State, 96 per cent of land allotment in the last five years is only for MSMEs.

  • MSME Minister Introduces Rs 20 Lakh Scheme for GST-Exempted Units

In a bid to bolster micro and nano enterprises (IMEs), the Ministry of Micro, Small, and Medium Enterprises (MSME) has rolled out the ‘Special Provision for Informal Micro Enterprises under Credit Guarantee Scheme.’ This initiative is geared towards providing crucial credit support to IMEs, addressing the inherent credit risk perception associated with lending to this sector.

Credit Accessibility:  The scheme offers a significant boost to IMEs by providing up to 85% guarantee cover for unsecured loans of up to Rs 20 lakh. This move is especially beneficial for IMEs registered on the Udyam portal, aiming to stimulate lending activities among member lending institutions (MLIs). By mitigating risks and increasing confidence, this scheme is expected to foster a conducive environment for IMEs to access much-needed credit facilities.

Milestones: The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), established in 2000, has been instrumental in supporting the growth of the MSE sector. Notably, CGTMSE has surpassed Rs 1.50 lakh crore in guaranteed amount in the current fiscal year, showcasing a remarkable increase of 50% compared to the previous year. This underscores the pivotal role played by CGTMSE in facilitating financial inclusion and credit flow to MSEs.

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