MSME is an abbreviation for Micro, Small and Medium Enterprises. This form of entity is used by...
India’s Micro, Small, and Medium Enterprises (MSMEs) are a large and growing market, employing about 60 million people in approximately 26 million enterprises. MSMEs in India contribute 8 % to the GDP. The whole MSME sector is the nursery for entrepreneurship driven by innovation and creativity. With the governments ‘Make in India’, there has been a significant jump in the FDI flow. Due to this, the MSMEs sector is poised to get bigger in India. In this article, we will discuss Banks Rework Funding Strategies for MSMEs.
If we look at the official estimates, there are a total of about 63 million micro, .33 million small, and about 5,000 medium enterprises in India, with Uttar Pradesh having the highest percentage of MSMEs in the country.
In this article, we’ll be discussing MSME’s under the MSME Development Amendment Bill, 2018, the benefits available to an MSME in India, how do we register MSME in India, the new bank reforms for MSMEs and the evolving needs of MSME in India.
Prior to 1991, the industries were divided into mainly two blocks i.e. large and small. For establishing a large industry, one needed a license and for a small
In 2006, under the MSME Development Act Section 7, a more comprehensive definition was given to MSMEs. The enterprises are now divided into two categories-
Both the categories are further categorized into micro, small and medium enterprises based on the investment in the plant and machinery equipment.
Under the MSME Development (Amendment) Bill, 2018, introduced by MSME Minister Giriraj Singh, any business having a total turnover up to ₹5 crore will be deemed to be a ‘micro enterprise’. The other slabs consist of ₹5-75 crore for ‘small enterprise’ and ₹75-250 crore for ‘medium enterprise.
|Nature of activity of the Enterprise||Investment in plant and machinery excluding land and building for enterprises engaged in manufacturing or production, processing or preservation of goods||Investment in equipment excluding land and building for enterprises engaged in providing or rendering of services (loans up to Rs 1 crore)|
|Micro||Not exceeding 25 Lakhs||Not exceeding 10 Lakhs|
|Small||More than Rs.25 lakhs but does not exceed Rs.500 lakhs||More than Rs.10 lakhs but does not exceed Rs.200 lakhs|
|Medium||More than Rs.500 lakhs but does not exceed Rs.1000 lakhs||More than Rs.200 lakhs but does not exceed Rs.500 lakhs|
The government has initiated measures for allowing easier access to funds and modernization of the MSME sector. These schemes ensure quality products, technology up gradation, credit linked subsidy and UID linked scheme for getting subsidy easily.
Some of the other benefits available to the MSMEs are listed below:
To encourage more and more MSMEs registration, the Ministry Of Micro, Small & Medium Enterprises has notified a simple one-page registration form known as ‘Udyog Aadhaar Memorandum’.
The entrepreneurs in the MSME field can file the form online, and they will get a unique Udyog Aadhar Number (UAN) instantly. The applicant needs to fill in general details like Aadhaar number, industry name, business address, bank account detail, and other basic details.
The businesses need to be deregistered if-
The Reserve Bank of India (RBI) has recently released guidelines for a restructuring scheme for the stressed accounts of micro, small and medium-sized enterprises (MSME). Following are the key changes in funding strategies-
MSMEs loans were de-growing as a result of demonetization and later on due to the implementation of GST. However, now the condition is stabilizing. In 2017-2018 revenue of MSMEs surged by 27% and the operating profit increased by 66 %.
SIDBIs MSME pulse report claimed that an estimated 5 lakh new borrowers are likely to enter the formal borrowing channels in 2018. However, there is a need to revive fresh lending by public sector banks to MSMEs.
Once every business is registered under the GST platform, the economy will definitely benefit from better compliance and transparency. With ease to business, the market will attract domestic investments which will impact MSMEs in India.
With the government’s commitment to strengthen MSMEs, we are expecting the current challenges to stabilize the situation and help the ‘make in India’ and ‘Skill India’ schemes prosper. The government has come up with ways to boost the economy, firstly it implemented a scheme to grant loans in 1 hour, and then it came up with the restructuring scheme.
It is very important to strengthen the credit structure to help MSMEs. The MSME sector has to be provided with better facilities as it is facing competition from Chinese imports.
Money can be raised from the debt market to service MSMEs that don’t have access to the debt market directly. Better access to formal credit revives MSMEs and helps the economy grow. The government has to achieve this goal together with RBI. Banks have to ensure more prudence that will help prevent a series of bad loans in the future. To improve finance for MSME we need to have robust debt market.