If you think raising funds from banks is tough, you are not alone. Bemoaning the lack of ease in availing a loan, Union Minister for MSME
Giriraj Singh recalled his personal experience of how he eventually had to turn to microfinance after failing to secure capital from banks for the Solar Charkha project
Expressing utter disappointment in his address to a cross section of bankers, MSMEs and industry representatives at the CII Regional Conference on MSME Financing held recently in the capital, Singh narrated the ordeal he faced. “I had a meeting with the State Level Bankers’ Committee (SLBC) in Bihar when I was visiting for the Solar Charkha project. I will not take the name of the bank but I faced a lot of difficulty. While the top management was on board, there was no movement from the local branch. Banks have this system – their Union is so strong that even the branch manager finds himself at odds to help in any way,” he said.
Launched in June last year, the Solar Charkha mission saw a subsidy of Rs 500 crore sanctioned in the first two years across 50 clusters. Proposed in the Union Budget for FY 19, the scheme had sought to harness non-conventional solar energy to aid more employment opportunities.
Elaborating further on the grim state of affairs that left him in a lurch, Singh said that banks block the subsidy amount being sanctioned as well. “Banks have this policy that, for instance, if they disburse loans of Rs 1 lakh then they take EMI on the 1 lakh amount instead of factoring in the subsidy as well. They charge interest on the total amount. Clear instructions should be given and if bankers are essaying such unlawful practices, the accountability on their career needs to be fixed,” he asserted, a chorus of loud cheering coming in from the audience enthusiastically affirming his viewpoint.
There are several schemes to help the MSME sector access finance from institutional sources, but the banks often shy from lending or make the process very cumbersome. According to the Economic Survey 2017-18, data on credit disbursed by banks shows that out of a total outstanding credit of Rs 26,041 billion as in November 2017, 82.6% of the amount was lent to large enterprises and MSMEs got only 17.4 % of total credit.
One of the most significant schemes is the Prime Minister’s Employment Generation Programme (PMEGP), which is aimed at generating self-employment opportunities by establishing micro-enterprises in the non-farm sector by encouraging and assisting traditional artisans and unemployed youth.
Contributing 32% to the country’s Gross Value Added (GVA), MSMEs also pave the way for industrialisation in rural and backward areas. Why the disbursement of credit is significant is because according to the National Sample Survey (NSS) (2015-16) there are 633.8 lakh unincorporated non-agriculture MSMEs that are also providing employment to 11.10 crore workers in the country, but the percentage or credit they receive is not in commensurate.
Citing how it has always been difficult for people in micro enterprises to amass funds, Singh urged bankers to align themselves with the needs of the youth so that there can be continuous progress. “In a country where 65% of the youth is 35 years, advancement will be a dream if one does not stand in step with the youth and tries to understand their concerns,” he said.
He also highlighted that core differences between the diverse set of finance seekers must be clearly understood. “These aspects should be carefully observed. When those in genuine need visit the bank, lengthy documentation and regulations are drawn up which deter prospective borrowers,” he added.
Drawing a parallel with Microfinance Institutions (MFI), the Minister said that banks need to analyse and ask why MFIs, despite an interest rate that is 1.5 times more than that of the banks, see a 99% recovery as against the latter, which even at 10-12% interest rate witness more NPAs.
Grameen Bank Bangladesh, an MFI, he observed has a system where women take funds from moneylenders and return to them, while also seeing women constitute an overwhelming majority of its borrowers.
Under PMEGP, the Minister stated a lot of efforts had gone towards financial inclusion and employment generation in the country. He also reiterated the government’s commitment towards the MSME sector via its various digital endeavours such as the MSME Samadhaan and Sambandh portal which helped in redressal and public procurement implementation respectively.
“Banks should show generosity, especially in the schemes that have already been sanctioned. Without financial inclusion, the nation won’t show any real progress. And without money, banks won’t function. Both have to be in sync. That is the only way for us to be on the next stage of development,” he said, signing off to a rapt audience.