Credit Protection Scheme For MSMEs Suggested

To support the estimated 63 million MSMEs which have been battered by the pandemic, CII has suggested a credit protection scheme for MSMEs whereby 60-70% of the loan should be guaranteed by the government, i.e. if the borrower defaults, government should repay the bank up to the amount it has guaranteed, so the risk to the lender is limited. This will encourage the banks to lend to the ailing sector so that their working capital needs are met.

In addition, the industry body has suggested the creation of a fund or SPV with a corpus of Rs 1.4-1.6 lakh crore which will subscribe to NCDs/Bonds of corporates rated A and above. The fund can be seeded by the Government contributing a corpus of Rs 10,000-20,000 crore, with further investments from banks and financial institutions. This will provide adequate liquidity to industry, particularly the stressed sectors such as aviation, tourism and hospitality.

The suggestions of the CII are noteworthy, given the huge impact of the lockdown on MSMEs. There have been frequent calls for a bailout of the sector, but, so far no package has been announced. In fact, the government has not indicated any economic package apart from the Rs 1.7 lakh crore package that was announced earlier.

One will have to wait and watch whether there would be any announcements later this month.