For merchants in the micro, small, and medium enterprises (MSME) sector, the government is set to provide a merchant credit card (MCC) facility this year to help these businesses get through their short-term liquidity problems. According to official sources, it is being created in the style of the Kisan Credit Card and will probably provide these units with incentives such as short-term, collateral-free loans up to a maximum at a lower rate.
However, the state-run Small Industries Development Bank of India’s (Sidbi) proposal to provide a digital “UPI-linked credit card” for MSMEs may be postponed since it necessitates wider inter-ministerial deliberations, according to the sources. Additionally, they stated, the concept of formalizing a shared set of rules for the two cards—MCC and Vyapar Credit Card (VCC)—with shared goals has been postponed.
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As an incentive for businesses to register themselves on its Udyam site, the MSME ministry had already enlisted Sidbi to establish the VCC. The action was intended to encourage the formalization of more such small firms.
According to Sidbi’s proposal, the VCC will offer features including interest-free credit for 20–50 days and a Mudra loan facility. Additionally, it suggests up to 85% credit guarantee coverage for micro units through the Department of Financial Services’ National Credit Guarantee Trustee Company (DFS).
The Indian Banks’ Association (IBA), with active support from the DFS and the Reserve Bank of India, is developing the framework for the MCC (RBI). According to one of the sources, this comprehensive exercise also involves the ministries of commerce, industry, and MSME.
The VCC will necessitate lengthy discussions because of its numerous aspects, which will take time. As a result, the IBA has been tasked with moving through with its plan for the MCC and obtaining clearance from the necessary parties, including the finance ministry, according to a source.
In 2019, Prime Minister Narendra Modi announced a proposal to offer small business owners a pension plan as well as credit card services and loans up to Rs 50 lakh without any kind of guarantee.
The government’s intention to offer such credit card facilities is also a part of a larger effort to increase the flow of formal credit to MSMEs, who are largely responsible for the country’s job growth. More than 40% of MSMEs in India lack access to official sources of financing, according to the World Bank’s estimate.
A number of recent events, including demonetization, the implementation of the goods and services tax system, and most recently the pandemic, have had a significant negative impact on MSMEs. According to various researchers, a significant number of MSMEs were negatively impacted by the Covid epidemic in particular.
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The Emergency Credit Line Guarantee Scheme (ECLGS), which facilitates guaranteed loans in the wake of the epidemic, was introduced by the government to lessen the shock. In April, among other measures, it granted $808 million (Rs 6,062 crore) help to revive Covid-affected MSMEs under a program supported by the World Bank.
According to the most recent statistics, outstanding credit to MSMEs increased by 5.6% to Rs 18.26 trillion in November from a year earlier, which is less than the 17.6% increase in non-food credit as a whole.
MSMEs make up around 40% of the nation’s exports, 6% of the GDP in manufacturing, and about 25% of the GDP in services.