The uncertainty created by the pandemic has disrupted the functioning of large, medium and small businesses across the country. In these circumstances, the importance of cash flow cannot be understated. To provide relief, the government and Reserve Bank of India (RBI) have come up with measures to help struggling businesses tide over the current crisis.
Some of them are -
FinTech (Financial technology) will be used to enhance the transaction-based lending.
Government has created emergency working capital of Rs 3 lakh crore for businesses including MSMEs. Under this, additional working capital finance of 20% of the outstanding credit as on February 29, 2020, will be provided in the form of term loan at a concessional rate of interest. The units with turnover of up to Rs 100 crore and up to Rs 25 crore outstanding will be eligible for this loan. They won't be required to provide any guarantee or collateral, as the amount is 100% guaranteed by the government.
A provision of Rs 20,000 crore has been made for around two lakh MSMEs who are either NPA or too stressed. Financial institutions are expected to provide the subordinate-debt to the promoters of such MSMEs equal to 15% of their existing stake in the unit, subject to a maximum of Rs 75 lakh.
Ministry of Micro, Small and Medium Enterprises and Small Industries Development Bank of India (SIDBI) have jointly established a Trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement Credit Guarantee Scheme for Micro and Small Enterprises. The corpus fund of CGTMSE is contributed by government and SIDBI. 75% of the loan amount is guaranteed by the Trust Fund. The nature of assistance includes a collateral free loan up to a limit of Rs 100 lakh for individual MSE on payment of guarantee fee to the lender. Â
To help MSMEs increase their size and capacity, government has plans to set up Fund of Funds (FoF) scheme with an amount of Rs 10,000 crore.
Global tenders to be disallowed in government procurement tenders up to Rs 200 crore.
Small Industries Development Bank of India (SIDBI)has announced the launch of financial schemes viz., SIDBI Assistance to Facilitate Emergency (SAFE) response against coronavirus and SAFE Plus. Under the schemes, loans are being offered at a low rate of interest of 5% within 48 hours.
SAFE Plus has been, especially, introduced to provide emergency working capital against confirmed government orders, with the same 5% rate of interest.
To finance MSMEs who are manufacturing any products or providing any services related to fighting coronavirus such as permitted drugs, sanitizers, masks, body suits, overalls, gloves, shoe covers, ventilators, testing labs, etc. The list is indicative.
To provide emergency working capital to MSMEs which are producing goods and services directly related to fighting coronavirus, against specific orders form the government / government agencies.
A special window available for financing the healthcare sector including hospitals, nursing home, clinics, etc. for their requirements related to fighting Corona Virus.
Target Audience
All existing MSMEs – whether SIDBI’s existing customers or new to SIDBI customers
All existing MSMEs – whether SIDBI’s existing customers or new to SIDBI customers
SIDBI’s existing customers or new to SIDBI customers, both are covered, including green field.
Meanwhile, digitalization of the financial industry has made seamless integration of the lenders, suppliers and buyers possible at reduced cost. FinTech has emerged as the most effective lending channel. According to a PwC report, credit availed by MSMEs have increased at a CAGR of 19.3% in recent years. The increase of FinTech penetration and adoption across sectors has had a positive effect on the Indian economy.
With the help of these relief measures, struggling business can survive these difficult times. Now, they have more options when it comes to funding. However, it is up to them find a way to access these offline and online lending solutions, and navigate in times of uncertainty.
Manya is a seasoned finance professional with expertise in the non-banking financial sector, offering 3 years of experience. She excels in breaking down complex financial topics, making them accessible to readers. In their free time, she enjoys playing golf.
