Enhancing the flow of bank credit to MSMEs through formalisation
Improving credit flow to the MSME sector at low cost has been a policy priority of the Government and the RBI. Various initiatives have been undertaken in this regard. These are elaborated below:
- Introduction of Trade Receivables Discounting System (TReDS): TReDS is a digital platform that facilitates the discounting of trade receivables of MSMEs through multiple financiers. These include banks and non-banking financial companies (NBFCs). The system meets MSMEs’ liquidity and working capital requirements. Cumulatively, 98.9 lakh invoices, amounting to ₹2.9 lakh crore, have been discounted on TReDS platforms as of 31 March 2024. This supports MSMEs in better liquidity and working capital management.
- Change in definition of MSMEs: From 1 July 2020, MSMEs are defined as per a composite criterion of turnover and investment in plant and machinery/equipment. This change is envisioned to bring a large number of entrepreneurs under the purview of the formal banking sector. It will facilitate the flow of credit to the industry at subsidized rates.
- Registration of MSMEs on Udyam Portal: The Ministry of Micro, Small, and Medium Enterprises (MSMEs) launched the Udyam Registration Portal (URP) on July 1, 2020. It has since established itself as an essential enabler for ease of doing business. The portal is beneficial because it is free of cost, simple, and online. This initiative was done to bring entrepreneurs under the ambit of the formal banking sector. It helps facilitate the flow of credit to MSMEs at subsidized rates.
- However, one challenge with URP is the registration of Informal Micro Enterprises (IMEs), which are sizable in number. According to the 73rd National Sample Survey, 6.3 crore unincorporated non-agricultural entities existed in FY16, primarily comprising micro-enterprises. Since IMEs do not have a PAN/GST, they cannot register on URP and avail themselves of the benefits of Government programs. To formalize such enterprises, the Ministry of Micro, Small, and Medium Enterprises (MSME), in collaboration with the Small Industries and Development Bank of India (SIDBI), launched the Udyam Assist Platform (UAP) on January 11, 2023. Through formalization, informal micro-enterprises will be linked to various facilities, such as access to markets and credit. As of June 2024, 1.86 crore IMEs have been onboarded on UAP. A total of more than 4.5 crore enterprises have been registered on URP and UAP as of 3 June 2024.
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