Those in need

Context: There is a need to widen the scope of collateral free loans to the micro, small and medium enterprises (MSMEs), as it excludes a sizable section of the MSME sector.

Limitations of the fiscal package: 

• Availed mostly by small MSME’s: Data from the Finance Ministry shows that average loan amount is low, between Rs 4-5 lakhs, indicating their precarious financial conditions.
• Demand side issues: Demand for the credit is low because:

• • • • MSME’s final consumption demand has fallen.
      • High interest rate charged puts them at risk.

• Supply side issues: Only companies with good credit rating are able to raise funds, other continue to struggle due to economic slowdown.

Way Forward:

• Widening the scope:  Extending the scheme to include ‘individual borrowers’—small traders, businessmen and self-employed workers, which accounts for a sizeable portion of labour force.