Scheme will carry a Tenure of 4 Years, under which Approximately 45 Lakh Entities will get the Benefit with Full Credit Support.

The Government of India has intervened to provide liquidity to Non-Banking Financial Company (NBFC) and Micro Finance Institutions (MFI) to rescue them from the trauma of coronavirus (COVID-19) by rendering partial to complete government guarantee to bank on loans provided to them.

The Fund Measures worth Rs. 75,000 Crores out of which Rs. 30,000 Crores are allocated to Buy Investment Grade Debt of MFIs, HFCs and NBFCs and will be Fully Backed by the Government.

Due to risk aversion in the market, certain NBFCs have put a lot of pressure on mutual fund portfolios, due to which they are reluctant to buy the debt. This scheme will help create demand for the securities and provide liquidity to them. Moreover, this broadens the scope of MSMEs, as they cannot be disqualified by the banks.

While the second scheme is to revive small entities like micro and small companies. Under this, support is extended to cover primary issues of lower-rated and unrated NBFCs which are partially guaranteed by the government i.e. 20% first loss is compensated by the government.

On that note, the government also mentioned that micro, small, and medium sized entities will get Rs. 3 lakhs crores in collateral free government guaranteed loans separately that would help the sector recover quickly. As it has been observed that MSMEs in India get disadvantage from foreign enterprises, to deal with this government has decided to disallow global tenders in government procurement tenders up to Rs. 200 crores.

Also, there is revision in the definition of MSME, for micro units, the investment limit has been increased from Rs 25 lakhs to Rs. 1 crore with turnover limit of Rs 5 crore. That means, businesses with investment of up to Rs 20 crore and turnover of Rs. 100 crores will now be considered as medium enterprise; and companies upto 10 crore of investment and Rs 50 crores of turnover will be known as small entities. Nirmala Sitharaman, the finance minister of India, said that the government has refunded the money worth Rs 18,000 crore to the taxpayers due to which a total of 14 lakh taxpayers have been benefited already.

Recently, Mehernosh Tata, head of SME lending at Edelweiss Retail Finance Ltd said that Rs. 3 lakhs crores collateral free loans will help MSMEs restart capital to clear their bills and arrears for their entity to begin functioning and guaranteeing fully or partially is an appropriate way to transmit money than targeted long term repo operations, as they put pressure directly on the banks.

The scheme will carry a tenure of 4 years, under which approximately 45 lakh entities will get the benefit with full credit support. But here the catch is, lack of clarity on allocation of funds whether Rs 3 lakh crore can be availed for setting the new facilities or enhancement of existing facilities. And, if it is for new facilities, what will be the procedure for that, who will be eligible? 

This scheme will ultimately run by the banks if they don’t choose micro and small units over bigger companies, then purpose will be questioned.


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