In a significant move to revitalize Micro, small and medium enterprises sector that forms an important part of Indian economy, Finance minister Nirmala sitharaman announced the launch of collateral-free term loan scheme. This initiative will helps MSMEs have easy access to credit and hence enhance their economic growth and contribution to the Indian economy boosting the sector as well as the economic growth of the country.
MSMEs provide employment to a vast majority of the population in India. Nearly 110 millions of Indians are employed in MSMEs and as such they contribute to nearly 30% of the country’s Gross Domestic product. Despite their significant stake in the GDP the MSME sector often struggles to access credit, mainly due to lack of collateral as these are small capital businesses who often need financial support for their expansion and modernization. The lack of collateral pushes these small business owners to borrow money from informal credit sources at higher interest rate and increased vulnerability. This pushes them into the cycle of overburden interest leaving them with limited capital investment for growth and expansion.
The scheme is a part of five key proposals to boost the MSME sector. This budget provides special attention to MSMEs and manufacturing, particularly labor-intensive manufacturing. We have formulated a package covering financing, regulatory changes and technology support for MSMEs to help them grow and also compete globally, as mentioned in the interim budget,” the FM said while announcing specific measures during her Budget speech on July 23.
The newly launched scheme is a step ahead in providing a financial backbone to the MSME sector and helps aid their growth and development. The center scheme provides MSMEs with collateral free loan for up to an amount of rs 1 crore, with a guarantee cover by government itself for upto 80% of the loan amount. The scheme also provides a long tenure of 5-7 years for repayment of loans. The interest rates offered are much lower than the ones offered in informal sector loan agreements as such the small business owners are not overburdened with interest payment issues. This also helps enhance competitiveness and helps MSMES to modernize and equip itself with the latest technology and compete globally. The growth of MSMEs also helps in employment generation, boosting the economy and reducing unemployment and hence contributes to the overall economic expansion. This will also help India achieve its goal of becoming the third largest economy. The growth will also help set up a high tax collection base of the government benefiting the government finances.
The ministry has decided to collaborate with both public and private sector banks to provide loans and ensure seamless implementation of the scheme. The scheme can be accessed through an online portal established dedicatedly for the scheme implementation. MSMEs can apply and track their loan application on the portal. Regular review and monitoring of scheme performance and making adjustments as needed will help the scheme grow and provide real time benefit to the small businesses.
As per the press information bureau and ministry of Finance government of India, the collateral free loan for Medium, small and micro industry marks a significant milestone in India’s economic journey as this easy access to credit will help MSMEs unleash the potential of uninterrupted growth, employment and global competition thus helping them establish itself in the global market. As the economy continues to navigate challenges, this initiative demonstrates the center’s commitment to support inclusive growth and development through cooperation and help navigate the small businesses through economic challenges.
True to life had a talk with Mohena bhagwat a Master’s degree student in economics, who acclaimed that the scheme is a big deal for the small businesses owners who have the initial capital to set up the business but lack the necessary impetus to pinpoint itself on the global market. The lack of technical and technological advancements and limited access to resources makes them stand far behind in the global competition. The collateral free loan will not only save them from the interest burden cycle which they become a victim of due to acquisition of loan from informal market, but this collateral free loan will also provide them with sufficient capital to enhance their business and face the global competition helping them leave a mark on the face of the global market.
By Adya Lovely,
Reporting for True To Life News Media