– Sreeja Biswas | February 1, 2023
Budget announcement of DigiLocker Set-up for MSMEs will solve KYC problems
Finance Minister Nirmala Sitharamn announced an infusion of Rs.9,000 crore to revamp the credit guarantee scheme for micro, small and medium enterprises (MSMEs) and bring relief to the Covid-19 hit sector.
“This will enable additional collateral-free guaranteed credit of Rs.2 lakh crore and reduce cost of credit by 1%”, said the Finance Minister in Parliament. The proposed scheme will take effect from April 1, 2023.
The Union Budget 2023-24 allocated Rs.14,100 crore for Guaranteed Emergency Credit Line (GECI) facility to eligible MSME borrowers. The revised 2022-2023 budget for the same was Rs.10,500 crore.
In cases of failure by MSMEs to execute contracts during the Covid period, 95% of the forfeited performance security amount will be returned to them by government, said the Finance Minister.
“MSMEs in India are un-derfinanced, unserved, and a have huge addressable credit gap”, said Arun Nay-yar, Managing Director & CEO, NeGrowth. “Providing capital to these players can play an important role in enabling their inclusive growth” he added.
The corpus injection assumes significance as the pandemic severely impacted MSME earnings, disrupting the supply of finished goods and the procurement of raw materials. The credit growth to the MSME sector has been over 30.5%, on average, during Jan-Nov 2022, supported by the extended GECL of the central government, according to the 2022-23 Economic Survey.
“The biggest drawbacks that still exist after the capital infusion are the delay in fund allocation and the difficulty in meeting the minimum eligibility criteria under the scheme, which is Rs.2 lakhs”, said Lokesh Shrirame, owner, Shrirame Agro.
The August 2022 Emergency Credit Line Guarantee Scheme (ECLGS) Insights, published by Credit Information Bureau India Ltd. (CIBIL), showed that the scheme helped MSMEs deal with the Covid shock, with 83% of the GECL borrowers being micro-enterprises.
The government also intends to establish a DigiLocker to enable electronic document storage and simplify digital credit applications for MSMEs. The move follows government’s plan to use the Centre issued Permanent Account Numbers (PANs) as a common identifier for all digital systems.
“DigiLocker will assist MSMEs solve the pain point of KYC, improving MSME cashflow and therefore survival”, said Vinay Narkar, Partner, Financial Services Advisory, KPMG in India.