About the Newsletter – “MSME सक्षम ” : 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 concept of small enterprises emerged during the industrial revolution, focusing on cottage industries and artisan-driven trades. MSMEs gained prominence globally due to their agility, innovation, and contribution to employment. The government recognized MSMEs as key drivers of self-reliance and rural development. Entrepreneurs in the Micro, Small, and Medium Enterprises (MSME) sector serve as a backbone for industrial and economic growth, especially in developing nations like India.

While MSMEs receive substantial support, challenges like access to finance, technology, skilled labor, and global competition persist. Strengthening TReDS, digital literacy, and fostering an ecosystem for startups and MSMEs can propel their growth further.

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

  • Our Special Corner
  • “Collateral, delays and risk: The credit woes of MSMEs 

Three years into running a product-based firm, 42-year-old Ashwin knocked on the doors of two nationalised banks, where he has loan accounts, for a credit enhancement from Rs 6 lakh to Rs 25 lakh to service an important order. Ashwin pursued the order doggedly, as he believed it would yield him good profits and steady business in the future.

Despite a good credit history, Ashwin was denied the loan, citing a decade-old credit card settlement (an agreement arrived between the company and the cardholder to pay a reduced amount) and lack of collateral as reasons. Left with no option, Ashwin turned to a private money lender in 2021, charging an exorbitant interest rate, to eventually complete the order.

Two years later, in 2023, another nationalised bank sanctioned a fresh loan for Ashwin, trusting his repayment capability and not considering his history with settlements. Ashwin flagged this as a major problem for entrepreneurs like him — different banks adopt different standards.

In November 2024, Arumugam, a grill manufacturer in Coimbatore, approached a public sector undertaking (PSU) bank for a loan of Rs 4 lakh to buy a new machine. The bank agreed to sanction the amount, but Arumugam had to settle for external credit from a Non-Banking Finance Company (NBFC) at an interest of 23% against 12.5% offered by the bank. Employees at the bank had informed him that the loan would take at least a month of processing time. 

The credit penetration rate in this section of the industry stands at an abysmal 14%. This is much lower than that of developed economies like the US (50%), and China (37%), according to a 2023 report by Ernst & Young. 

Various studies peg the credit gap in India at about Rs 30 lakh crore. Though the bank credit to micro and small enterprises for April 2024 grew by 15.6% when compared to the same month last year, there remains a huge gap, yet to be bridged.

Lack of adequate formal credit avenues, losses incurred during the Covid-19 pandemic, teething problems due to digitisation, general lack of demand and labour shortages are bringing many businesses to their knees. There are about 5.6 crore MSMEs in India, according to registration data available on the Udyam portal as of December 2024. About 61,500 units have closed down in the last four years. 

Assessment systems

Since a majority of the micro units operate in the informal sector, banks are wary of lending credit to them due to highrisk perception as these enterprises lack professional bookkeeping practices, explained Maharashtra-based Vijay Kalantri, president of the All India Association of Industries. 

“Also, the average ticket size of MSME loans is less, making it unjustifiable for banks to incur administrative costs to cater to this segment. Another reason loans are turned away is due to the lack of collateral to access bank funding,” Kalantri said. 

Presently, MSMEs await new credit assessment models in the Union Budget 2024-25 to assess MSMEs, without relying on the existing scoring methods like CIBIL. “A new rating system should factor in all the problems that are currently being faced by MSMEs. It should solve all their problems in accessing formal credit,” Raghunathan said.

Collateral

Sandeep Bidasaria, vice-president of the Karnataka Chamber of Commerce and Industries, Hubballi chapter, said that banks’ insistence on collateral has discouraged entrepreneurs from approaching them to a large extent, especially after Covid-19. “The Union Government did come out with a policy for MSMEs to do away with collateral but that is only for loans up to Rs 8 lakh, and it is of not much help,” he added.

MSMEs need quick access to credit and documentation processes often delay this. “Their credit demand is not only for expansion or diversification but also for working capital,” he said, adding that the only option is to go back to conventional old bank credit by infusing more funds into banks. “The most recent RBI Monetary Policy gives room for providing more liquidity, but we have to wait and watch how the situation evolves,” he said. (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.

  • “CGTMSE: Govt’s collateral-free MSME loan scheme hits 1 crore guarantees”

The government’s Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), which provides guarantees to banks for collateral-free loans to micro and small enterprises (MSEs), has achieved the 1 crore guarantee mark. The fund, launched in 2000, enables collateral-free loans up to a limit of Rs 5 crore to MSEs with guarantee coverage up to 85 per cent for various categories of loans under the credit guarantee scheme. 

The three prominent member lending institutions that played a significant role in hitting 1 crore guarantees were State Bank of India, HDFC Bank and Union Bank, CGTMSE said in a statement on Tuesday.

Across India, the maximum number of approved guarantees were recorded in Uttar Pradesh with 11.61 lakh guarantees followed by Tamil Nadu (7.92 lakh), Andhra Pradesh (7.78 lakh), Maharashtra (7.70 lakh), Karnataka (7.26 lakh), and others, as of October 31, 2024, according to the data shared on November 28 in the Parliament by Shobha Karandlaje, Minister of State in the MSME Ministry.

To boost affordable credit access to MSEs, the government is targetting Rs 5 lakh crore guarantees in the next two years under CGTMSE, Dr Rajneesh, Additional Secretary and Development Commissioner (MSME), Ministry of MSME had said at an event in September this year.

In September, MSME Minister Jitan Ram Manjhi had announced an increase in CGTMSE guarantee coverage for women-owned MSEs to 90 per cent, targeting 27 lakh women beneficiaries. Source: Click Here

The Puducherry government has received ₹31 crore under Central government programme, ‘Raising and Accelerating MSME Performance (RAMP)‘, for the development of micro, small and medium enterprises in the Union Territory, Director of Industries P. T. Rudra Goud said on Friday.

Speaking at a conclave on MSME business organised by the Confederation of Indian Industry, Mr. Goud said the government was keen on improving the efficiency and performance of MSME sector in the Union Territory. There are around 6,000 small and medium firms involved in the manufacturing of goods in the region.

RAMP, he said, aims to scale up the capacity of the MSME sector by fostering innovation, enhancing market access and encouraging ideation. The government would appoint a professional agency to assist MSMEs to identify their problem, find solution, and help them in branding and availing funds, he said. Source: Click Here

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

  • Trade Receivables Discounting System (TReDS) – Part 57

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.  

The Trade Receivables electronic Discounting System (TReDS) was released by the Reserve Bank of India in 2018 to help small businesses resolve cash flow issues.

Plans underway for bigger role for TReDS, to enrol million MSMEs in 2 years

The country’s Trade Receivables E-discounting System (TrEDs) platforms are drawing up plans to on-board as many as a million micro, small, and medium enterprises (MSMEs) over the next couple of years.

The issue figured in recent discussions between the Reserve Bank of India (RBI) and firms in the TReDs space. Other matters which were taken up as part of the stock-taking were the status of inclusion of insurance companies as the “fourth participant” on TReDS (apart from MSME sellers, buyers and financiers), and its linkage with the Goods and Service Tax Network (GSTN).

TReDs are online platforms which enable suppliers. Source: Click Here

  • MSME Corporate News:
  1. Bengal hopeful of surpassing Rs 1.53 lakh crore credit target for MSMEs in FY’25

The West Bengal government on Friday expressed optimism about surpassing its Rs 1.53 lakh crore credit target for the Micro, Small, and Medium Enterprises (MSMEs) sector in the state for the 2024-25 fiscal.

Achieving this milestone would reflect a 7.7 per cent credit growth for the sector over the previous fiscal year. The credit flow to MSMEs stood at Rs 1.42 lakh crore in the previous fiscal.

Mitra noted that credit flow to Self-Help Groups (SHGs) has been steadily rising, with a target of Rs 30,000 crore set for FY’25, compared to Rs 25,000 crore achieved in the year-earlier period.

Highlighting the state’s 12.14 lakh SHGs, he emphasised the role of human capital in driving demand creation and economic growth while speaking at a summit organised by the Bengal Chamber of Commerce and Industry and the Rising Asia Foundation.

He also pointed out that despite a reduction in corporate taxes at the national level, private sector investments failed to gather the expected momentum. (To read more – Click Here)

  • High interest rates deterrent for MSME exporters; working with FinMin: DGFT

The country’s high interest rates are a big deterrent for exporters community and the commerce ministry is working with its finance counterpart to help them at this front, a senior government official said on Wednesday.

Director General of Foreign Trade Santosh Kumar Sarangi said that the department of commerce has been “struggling” to convince the finance ministry regarding the relevance of the Interest Equalisation Scheme (IES) and the extent to which it is maintaining manufacturing competitiveness.

Sarangi said there are many studies which suggest that very high collateral demand by financial institutions is a big deterrent for MSMEs to access institutional finance and that deters them from getting into the export market.

So how do we ensure collateral free or a subsidised collateral arrangement for MSMEs is something that the department of commerce is working with the department of expenditure,” he said adding India has high interest rates vis-a-vis its peer nations. Read more – Click Here

  • Federal Bank, Ecofy partner on financing for MSME rooftop solar

Federal Bank, a private-sector bank in India, has partnered with Ecofy, a green-only non-banking finance company, to offer financing solutions for MSMEs investing in commercial rooftop solar installations. The program targets financing 3,600 kW of rooftop solar installations annually, benefiting numerous MSMEs while cutting over 2,500 tons of CO2 emissions each year—accelerating decarbonisation and fostering sustainable growth.

Inox Wind Ltd (IWL), a wind energy solutions provider in India, announced today that it has bagged a 60 MW order from Serentica Renewables (Serentica), a C&I focused renewable energy company in India. This order is for the supply of 3 MW wind turbine generators (WTGs) to be delivered within the first half of CY 2025. Additionally, IWL will provide multi-year post commissioning operations & maintenance (O&M) services for these WTGs, which will be erected at the hybrid renewable energy project site being developed by Serentica in Karnataka. The power generated from this project will be supplied to Serentica’s partners, including the Vedanta Group. (To read more – Click Here)

India’s cash-strapped micro, small and medium enterprises (MSME) sector has faced another tumultuous year, with 2024 proving to be a mixed bag. Despite showing resilience, MSMEs continue to grapple with a plethora of challenges, including delayed payments, crippling debt, and sluggish technology adoption, all exacerbated by soaring costs and other pressing issues.

The backlog of payments to MSMEs has escalated to Rs 21,108 crore, with over 90,000 applications filed, according to data from the MSME Samadhaan portal in November 2024. This platform, which tracks delayed payments from government entities, identifies state governments as the largest defaulters, with dues amounting to Rs 3,170 crore.

Amid varied reactions to the Centre’s 45-day payment rule, many MSMEs still face delays in receiving payments. The government’s introduction of a 45-day payment rule aimed at safeguarding MSMEs from bad debt which mandates that buyers settle invoices within 45 days, with non-compliance resulting in tax liability on the unpaid amount. The cash-strapped sector has an estimated Rs 10.7 lakh crore which is 5.9 per cent of the gross value added (GVA) of Indian businesses is locked up annually as delayed payments from buyers to MSME suppliers, according to a report by D&B and Game.

The year 2024 has been a mixed bag for MSMEs, while some MSMEs have leveraged digitalisation and government schemes to drive growth, others continue to struggle with delayed payments, rising costs and limited access to credit, revealing the need for more inclusive policies and support mechanisms.

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