The VCC, as proposed by Sidbi, promises features, including interest-free credit for 20-50 days and Mudra loan facility.
The move was aimed at driving more such small businesses towards formalisation. (Image: Representational)
The government will likely roll out a merchant credit card (MCC) facility for traders in the micro, small and medium enterprises (MSME) category this year to help these units tide over short-term liquidity woes. It is being designed along the lines of the Kisan Credit Card and will likely offer incentives such as short-term, collateral-free loans up to a limit at a cheaper rate to these units, official sources told FE.
However, a plan to launch a digital “UPI-linked credit card” for MSMEs, designed by the state-run Small Industries Development Bank of India (Sidbi), could be delayed, as it requires broader inter-ministerial consultations, the sources said. Moreover, the idea of firming up a common set of guidelines for the two cards — MCC and Vyapar Credit Card (VCC) — with common objectives has also been put off, they added.
The MSME ministry had earlier roped in Sidbi for launching the VCC as an incentive for those units that get themselves registered on its Udyam portal. The move was aimed at driving more such small businesses towards formalisation.
The VCC, as proposed by Sidbi, promises features, including interest-free credit for 20-50 days and Mudra loan facility. For micro units, it also proposes up to 85% coverage under the credit guarantee fund run by the National Credit Guarantee Trustee Company under the Department of Financial Services (DFS).
The framework for the MCC is being developed by the Indian Banks’ Association (IBA), with active guidance from the DFS and the Reserve Bank of India (RBI). The ministries of commerce and industry and MSME, too, are involved in this elaborate exercise, said one of the sources.
“Given its several features, the VCC will require large-scale deliberations, which will take time. So, the IBA has been asked to go ahead with its proposal for the MCC and seek approvals from relevant authorities, including the finance ministry,” said a source.
Prime Minister Narendra Modi had in 2019 announced the plan to provide loans of up to Rs 50 lakh to traders without any guarantee, along with credit card facility and a pension scheme for small shopkeepers.
The plan to issue such credit card facilities is also part of the government’s broader move to ensure greater flow of formal credit to MSMEs that account for a bulk of the country’s job creation. According to the World Bank’s assessment, over 40% MSMEs in India lack access to formal sources of finance.
In recent years, MSMEs have been hit hard by a combination of factors, such as demonetisation, the rollout of the goods and services tax regime and, more recently, the pandemic. The Covid outbreak, particularly, caused a large number of MSMEs to sink, according to several analysts.
To soften the blow, the government came out with the Emergency Credit Line Guarantee Scheme (ECLGS) to facilitate guaranteed loans in the aftermath of the pandemic. In April, it approved a $808-million (Rs 6,062 crore) support to revitalise Covid-hit MSMEs through a programme backed by the World Bank, among other steps.
According to the latest data, outstanding credit to MSMEs jumped 5.6% as of November from a year before to Rs 18.26 trillion, lower than the 17.6% jump in overall non-food credit.
MSMEs account for about 40% of the country’s exports, 6% of the manufacturing GDP and almost 25% of the services GDP.