Now CGTMSE should focus on Start ups in Manufacturing
Credit Guarantee Trust for Micro and Small Enterprises (CGTME) is implementing the flagship programme of Ministry of MSME to provide guarantee to the Banks for collateral free loan to micro and small enterprises upto the credit limit of Rs. 1 crore. Till September, 2015, under the scheme, credit to the tune of Rs. 10, 16, 683 crore have been guaranteed to nearly 17.22 lakh entrepreneurs, a commendable achievement indeed. Only in the first half of fiscal 2015 -16, nearly 2 lakh entrepreneurs were facilitated collateral free credit, under the scheme.
However, one weird aspect of the scheme should not be overlooked. While the achievements under the scheme are impressive, Banks are playing a number game by providing loans to more persons under the scheme, while keeping the size of the loan at abysmally low level. Since 2009 – 10, for the last 5 years, the average size of the loan guaranteed has remained around Rs. 5 lakh, not even sufficient to launch a micro enterprise today. And if we consider the inflation, in real term the loan size may have reduced by about 30%, not a healthy trend at all.
For implementation of the Make in India mission of the Prime Minister, the MSME sector will play a major role and to upscale manufacturing in the sector, new investments and new enterprises are required to be supported by the Banks. While PE funds and Angels are making headlines in funding non - manufacturing innovative start - ups, there is almost no support available to the poor start ups in manufacturing, even in frontier technologies like non – conventional energy, defence equipment, Biotech etc., simply because they cannot show exponential growth in valuation. Here collateral free credit will come as a great help, as most of these new entrepreneurs cannot provide the kind of collateral demanded by the Banks. And, of course, there requirement will be much more than Rs. 5 lakh.
Another issue to ponder with is, RBI has repeatedly advised the Banks to provide loan upto Rs. 25 lakh, collateral free. But CGTMSE figures show Banks are predominantly focusing on small loans under the scheme, so taking minimum risk exposure while showing impressive numbers.
If the current trend is to be reversed, Banks need to be advised by the Ministry to focus on providing collateral free credit to the manufacturing MSMEs particularly to the new entrepreneurs, who have a promising business plan but do not have assets to pledge. And with the introduction of the MUDRA scheme by the Government to provide collateral free loan to the tiny enterprises, it is high time CGTMSE should stop duplication of efforts in this sector.
For the success of Make in India, upscaling of manufacturing at the bottom of the industrial pyramid cannot be delayed and for spawning of innovative enterprises in manufacturing, refocusing of CGTMSE is an immediate necessity.