Budget 2022: Here’s what MSME sector is expecting from FM Nirmala Sitharaman

With the Union Budget around the corner,  as part of our special segment Budget Countdown, CNBC-TV18's Latha Venkatesh spoke to Rajesh Kumar, MD & CEO, CIBIL, and Umesh Revankar, VC & MD, Shriram Transport Finance, to understand what's on the MSME sector's wishlist.

First up, Kumar said that the emergency credit line guarantee scheme (ECLGS) has been very successful. In fact 10 percent of the total small and mid-size enterprises (SMEs) loans were lent under this scheme. He further explained that 90 percent of the loans issued under the said scheme were of a small ticket size.

He said, “ECLGS scheme has been very effective. ECLGS sanctioned 2.84 lakhs to more than a crore entities and this is almost 10 percent of the total loan amount outstanding to MSMEs, which is 20 lakh crore, so this is quite significant."

"Public sector banks (PSBs) took off very well at the launch of the scheme last year. Almost 90 percent of the disbursement went to sub one crore, which I think is very effective given that we are talking about micro, small and medium enterprises (MSMEs),” he added.

On MSMEs, Kumar said that organised credit is yet to find its way to the sector. According to him, only a small number of  MSMEs have gotten credit in the sector.

“There are more than nine crore current accounts from MSMEs in India; there are 6 crore registered MSMEs but in our commercial bureau, there are only 2.5 crore MSMEs who are ever been credited and we know that just about one crore is the number that are GST registered. So from 9 crore to 6 crore to 2.5 crore to 1 crore, clearly organised credit is yet to penetrate fully into this segment,” Kumar explained.

Kumar believes there's a need to create retail like template form of underwriting based on cash flow versus asset security. He explained that easier access to different data to enable smoother flow of credit is also needed.

“I think what we need really in this sector is to create a retail like templatized form of underwriting, which is collateral-free, but more based on cash flows, like we spoke about trades, etc. So what this industry needs really is for all of us to enable information-based, cash flow-based lending,” he said.

Meanwhile, Revankar too reiterated Kumar's point regarding the success of ECLGS. He believes there’s a need for an easier process in order to make the scheme become more effective. He explained that claiming credit under the scheme is very challenging. Additionally, he stated that post-disbursements, the claims were delayed.

“The first six months of this scheme, we did really involve a lot of our customers and immediately made the payment and they were quite happy. But post-disbursement, and once there were some claims, as an industry we observed that the claims were getting delayed, and therefore there is some kind of taking back from the industry. The industry is not really going ahead with extending that scheme to the MSME,” he explained.

He added, “So unless the process becomes easy, we will not be able to take it forward.”

On demand, he said that heavy commercial vehicles (HCV) are yet to see pick-up. “The heavy commercial vehicle demand is yet to pick up. There are supply chain blocks even today. Most of the vehicles do not run on all-India basis. So the small distance transportation is very smooth, but long distance transportation and the actual pickup of the large scale commodity transportation is slowly happening. I think over the next couple of quarters, it should improve,” Revankar said.

Giving certain suggestions, he said that MSMEs will start functioning as per expectations if exports are given incentive. He also feels the claim of credit here should be like affordable housing scheme.

He mentioned, “The export income should become tax-free, so that one can put that money back into the business. If you do that, I think MSMEs will start functioning as per expectation and create more jobs.”