With reference to the editorial “Helping MSMEs”(July 8), an important statement in it is “access to low cost finance and problem of locked up working capital remain an endemic concern”. MSMEs find it difficult to tap the capital market through IPOs and access bank loans.
Continuous monitoring of the sector is a must given the magnitude of problems it faces. The sector’s growth is vital for creating jobs. As the Editorial rightly points out “MSMEs in high tech areas need a set up that takes their mind off other managerial headaches”.
While banks and non-banking financial companies are the main suppliers of credit to MSMEs, it is imperative to rejuvenate the suppliers to ensure the uninterrupted flow of credit to MSMEs. Financing the fixed assets with a nominal contribution and relaxed payback period in consonance with the cash inflows are needed to avoid defaults and to keep the MSMEs financially sound.
The long realisation period of the receivables in the working capital cycle needs flexible working capital finance too.
Lenders have to create and tune the lendings to the MSMEs in such a way to ensure that the credit input is adequate in running the economic activities of the enterprise.
While a number of micro-enterprises are borrowing from the NBFCs, it is essential to keep those lenders stress free to enable them to continue lending.
The proposed capital infusion of the public sector banks will ease the flow of funding to the NBFCs, and consequently to the MSMEs. Incentivising MSMEs is essential to push the exports as well as to create more job opportunities. Despite the priority sector status, credit flow to the MSME sector from banks are dismal, particularly in the case of the micro units. A strong credit guarantee system to guarantee the lending to the MSME sector is needed to dispense with the system of taking the collateral by the lenders.
At any of point of time, the asset created out of the bank credit must be of good quality and of sufficient value to ensure the mandated use of the bank credit and to continue it as security against the funding.
via Helping hand to MSMEs – The Hindu BusinessLine