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Providing Credit Card to MSME Entrepreneurs

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Providing Credit Card to MSME Entrepreneurs

Recently, the Parliamentary Standing Committee on Finance has recommended providing credit cards to MSME entrepreneurs.

The Micro, Small and Medium Enterprises (MSME) sector contributes to the Indian economy in the following ways:

  • Contributes to about 30% of India’s Gross Domestic Product (GDP),
  • The sector accounts for more than 48% of India’s total exports,
  • It contributes to 45% of India’s total manufacturing output and the sector generates 111 crore jobs through a total of 6.34 crore enterprises.

Key issues:

  • There is a paucity of information about the MSME sector. No survey has been conducted since the year 2017. The definition of MSME was changed in the year 2020. Still no specific results have been found.
  • More than 70% of MSMEs are still functioning as informal entities.
  • According to the UK Sinha Expert Committee on MSMEs, there is an overall credit gap or credit shortfall of Rs 20-25 lakh crore in the MSME sector.
  • Less than 40% of the loans have been taken from formal financial sources.
  • Banks are avoiding lending due to lack of reliable data.
  • These are unable to meet the collateral requirements demanded by banks/NBFCs for loans.
  • Due to late payments, they are forced to take costly loans from informal sources.

Recommendations:

  • The MSMEs should be surveyed regularly. Also, fact-based annual financial reports should be published by SIDBI (Small Industries Development Bank of India).
  • A strong, integrated digital ecosystem of MSMEs should be created.
  • Credit shortfall should be estimated accurately. Also, a time bound roadmap should be prepared to address that shortfall.
  • A nationwide MSME business credit card scheme should be started under SIDBI on the lines of Kisan Credit Card under NABARD. Interest subvention of 2-3% should be given on this. The card should be made available only upon signing up on the enterprise portal.
  • Many banks have started MSME credit cards / Small entrepreneur credit cards.
  • “UPI for MSME Lending” system should be created for fully mobile based, easy, instant, contactless and paperless capital loans.
  • SIDBI should develop an “Enterprise Assist Platform (UAP)” to expedite the registration of MSMEs on the Udyam Portal. Also, it should act as the nodal agency for enterprise value added financial applications.

Source – The Hindu

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