Government’s New MSME Funding Scheme Promises Rs 20,000 Cr

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  • Promoter(s) of the MSMEs will be given credit equal to 15 per cent of their stake (equity plus debt) or Rs 75 lakh whichever is lower
  • There will be a moratorium of seven years on payment of principal

Minister of MSME, Nitin Gadkari has launched the ‘Credit Guarantee Scheme’ for sub-ordinate debt (CGSSD) which is also called “Distressed Assets Fund–Sub-ordinate Debt for MSMEs”. As per the scheme, the guarantee cover worth Rs 20,000 crores will be provided to the promoters who can take debt from the banks to further invest in their stressed MSMEs as equity.

On 13 May, 2020, finance minister had announced this scheme of sub-ordinate debt to the promoters of operational but stressed MSMEs. After completion of necessary formalities including approval of CCEA and consultation with finance ministry, SIDBI and RBI among others, the scheme was formally launched today by Gadakari from Nagpur.

“This Scheme will support promoters of the operational MSMEs which are financially stressed under banking rules,” read a tweet posted by the minister.

Another tweet read, “The guarantee cover worth Rs 20,000 crores will be provided to the promoters who can take debt from the banks to further invest in their stressed MSMEs as equity, hence maintaining liquidity and debt-equity ratio.”

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Moratorium of seven years on payment of principal

This scheme, as per the ministry, seeks to extend support to the promoter(s) of the operational MSMEs which are stressed and have become NPA as on 30th April, 2020. Promoter(s) of the MSMEs will be given credit equal to 15% of their stake (equity plus debt) or Rs. 75 lakh whichever is lower.

Promoter(s) in turn will infuse this amount in the MSME unit as equity and thereby enhance the liquidity and maintain debt-equity ratio. 90 per cent guarantee coverage for this sub-debt will be given under the Scheme and 10 per cent would come from the concerned promoters. There will be a moratorium of seven years on payment of principal whereas maximum tenor for repayment will be 10 years.

MSMEs at a glance

MSME’s form an integral part of electronics manufacturing sector in India. A couple of years back, the Ministry of MSME had pointed out that there are about 30 million SME manufacturing units in India, which contributed about 45 to 47 per cent of India’s industrial output, 42 per cent of the country’s total exports, adding up to 37 per cent of our GDP, while employing over 60 million, which is over 66 per cent of the 80 million people employed within the Indian manufacturing sector.

Industry or the manufacturing sector employs about 22 per cent of the country’s total workforce, the size of which is estimated to be between 430 to 470 million. The SME sector creates more than 1.3 million jobs every year and produces more than 8,000 quality products for the domestic and international markets.

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