MSMEs in need of immediate succour–Economic Times

While the provision of credit might suffice to help larger industry tide over the grim period of zero revenue during the lockdown, micro, small and medium enterprises (MSMEs) might require a dose of funds that do not require to be serviced, at least in the short term. It could be an outright grant, on the lines of the funds being extended across Europe and the US, to help industry meet fixed costs, chiefly wages. Or it could be equity from the fund of funds the government has proposed. By the time the fund of funds is set up and breeds a sufficient number of daughter funds to together provide succour to MSMEs, there might not be a whole lot of the smaller companies left standing to receive those funds.

 

A practical solution might be for the government to direct banks to give loans with 100% interest subsidy, for a quantum that would cover these enterprises’ fixed costs for a four-month period, to their small business clients, particularly those borrowing under the Mudra scheme. The Small Industries Development Bank of India can help with identification of units to be helped as well, and the new crop of banks that previously existed as microfinance institutions can be of particular help in this regard. The government could take the help of non-banking financial companies (NBFCs) with a good track record as well. The fund of funds could buy out these loans from the banks and NBFCs and convert them into equity in the companies so assisted. The promoters could be given the option to buy out the government stake later.

Full operationalisation of the Trade Receivables Discounting System (TReDS), an online factoring platform that holds great promise in realising swift settlement of MSME dues, brooks no delay either. Large buyers who do not cooperate should have their rating impaired.

via MSMEs in need of immediate succour

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