Credit Growth for MSMEs

• 31 Jul 2021

Why in News

According to a report from TransUnion Cibil and Small Industries Development Bank of India (SIDBI), there has been a growth in the credit outstanding amount of Micro, Small and Medium Enterprise (MSME) sector to Rs 20.21 lakh crore, with a year-on-year growth rate of 6.6%.

• Even according to the Reserve Bank of India (RBI), credit growth to micro and small industries accelerated to 6.4% in June 2021, compared to a contraction of 2.9% in 2020.

Small Industries Development Bank of India

• SIDBI set up in April 1990 under an Act of Indian Parliament, acts as the Principal Financial Institution for Promotion, Financing and Development of the MSME sector as well as for coordination of functions of institutions engaged in similar activities.

TransUnion CIBIL Limited

• It is a credit information company operating in India. It maintains credit files on 600 million individuals and 32 million businesses.

Key Points

• Loans to MSMEs:
  
  • In Financial Year (FY) 2021, the country disbursed loans worth Rs 9.5 lakh crore to MSME sector, higher than preceding year of Rs 6.8 lakh crore in FY 2020.
• Outstanding Credit:
  
  • MSME credit outstanding has grown by 6.6% in March’21, with the micro segment growing the fastest at 7.4%
    
    • Micro segment was followed by the small segment at 6.8% and medium segment at 5.8%.
• Sector Wise Analysis:
  
  • Agriculture and Allied Activities:
    
    • Credit to agriculture and allied activities continued to perform well, registering an accelerated growth of 11.4% in June 2021, compared to 2.4% in June 2020.
  • Industry:
    
    • Within industry, credit to food processing, gems & jewellery, glass & glassware, leather & leather products, mining & quarrying, paper & paper products, rubber, plastic & their products, and textiles registered high growth in June 2021.
    • However, credit growth to all engineering, beverages & tobacco, basic metal & metal products, cement & cement products, chemicals & chemical products, construction, infrastructure, petroleum coal products & nuclear fuels and vehicles, vehicle parts & transport equipment decelerated or contracted.
  • Services:
    
    • Credit growth to the services sector decelerated to 2.9% in June 2021, from 10.7% in June 2020, mainly due to contraction in credit growth to commercial real estate, Non-Banking Financial Companies (NBFCs) and tourism, hotels & restaurants.
    • Credit to trade segment continued to perform well, registering accelerated growth of 11.1% in June 2021 as compared to 8.1% a year ago.
• Reason for Growth:
  
  • The rise in credit offtake by MSMEs is due to a host of government initiatives like the Emergency Credit Line Guarantee Scheme (ECLGS) to tackle the economic downturn created by the Covid pandemic.
    
    • ECLGS scheme was launched as part of the Atmanirbhar Bharat Abhiyan package announced in May 2020 to mitigate the distress caused by coronavirus-induced lockdown, by providing credit to different sectors, especially MSMEs
    • It’s objective was to support small businesses struggling to meet their operational liabilities due to the imposition of a nationwide lockdown.
    • Recently, the government has widened its scope to new sectors, including hospitality, travel and tourism.
• Other Initiatives for MSMEs:
  
  • Prime Minister’s Employment Generation programme (PMEGP)
  • Scheme of Fund for Regeneration of Traditional Industries (SFURTI)
  • A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE)
  • Interest Subvention Scheme for Incremental Credit to MSMEs
  • Credit Guarantee Scheme for Micro and Small Enterprises
  • CHAMPIONS portal
  • MSME Samadhan

Source: IE