New Delhi, Nov 22 (KNN) Representing the MSME community of India, Federation of Indian Micro and Small & Medium Enterprises (FISME) raised issues concerning government procurement and finance in context of MSMEs with the Finance Minister Nirmala Sitharaman in course of pre-budget meeting.

Presenting its submission for Union Budget 2023-24, the apex MSME body has urged for FM’s immediate intervention in setting-up a joint committee of RBI, Banks and stakeholders (DFS & MSME associations) to develop a sui generis rating model for MSMEs which focuses on solvency alone.

Citing the talking points submitted by FISME, the federation said that BLR rating requirement is proving to be a great dampener in growth of MSMEs.

Emphasising on the gravity of the issue, Prashant Patel, President of FISME has called for examining several options.

Banks continue to demand BLR rating from SEBI approved rating agencies for lending to SMEs. In absence of virtually no model, CRAs hardly award even BBB+ rating to MSMEs which has become a must for the Bankers, he pointed out.

“While credit rating for listing of Companies is to ascertain ‘ROI/ growth’ for retail equity holders/ investors, the BLR rating, needs to determine ‘solvency’ of the borrowers as working capital that Banks lend is a Demand Loan for short term,” he said.

FISME chief questioned the application of the same model on SMEs for BLR, when its nature is totally different from equity/bond rating.

“Obviously the existing practice of CRAs leads to erroneous making access to competitively priced finance nearly impossible for SMEs. We have raised the issue with IBA and RBI without much success,” he said urging for immediate intervention.

Further it has appealed the Union Government to form a task force to study the extent of spread of the malice and suggest remedial measures in a time bound manner against private sector banks that levy pre-payment penalties (4%) on hapless MSEs who try to change the bank if unsatisfied with poor services.

This is in direct defiance of the Code for MSE customers of which they are signatory, said the MSME body which has reported more than 100 cases by MSE borrowers. 

Regarding public procurement, FISME has requested the FM to iron out a few regulations that have come in the way of the implementation of option of replacement of Bank Guarantee by Surety Bonds which was announced in last year’s budget speech.

Differentiating quality and paying for it extra in Public Procurement constituting a huge proportion of GDP, can truly change the game, said FISME suggesting incentivizing quality which will make supply of sub-standard goods/services commercially unviable and will lead to a virtual cycle of quality.

A CIBIL like institution can be created to capture differentiation in quality to share scores to all buyers and a no of reforms are due in GFR & grievance redressal mechanism to make contracts between B2G commerce, it said.

Reflecting on the disastrous state of the existing industrial infrastructure, it said comprehensive scheme for Financing Industrial Area Development Scheme may be considered for both brown and green field projects on the lines of Industrial Infrastructure Up-gradation Scheme (IIUS). 

Giving Gujarat’s example of 75% tax proceeds to industry association for upkeep and upgrade, FISME said simultaneous policy reforms are necessary.

Lastly, it said that if India wants to realize the potential of market access, through FTAs with UK, Australia, EU etc, it needs to work on harmonization of Standards and setting up of labs having Mutual Recognition Agreements (MRAs).

FISME also called for the need to build institutional capacity of BIS as well as nationally accredited labs and encouragement of Foreign to set up shop in India and set standards to emulate.  (KNN Bureau)