MSME IN INDIA

PREFACE

Dear Professonals, as we all know, due to COVID-19 Impact, MSME Industries which are the backbone of the Indian Economy are facing Cash Crunch situation. The Government of India is taking steps to revive the Indian economy as soon as possible. To help the MSME Sector, the Government of India has saved them from Insolvency Bankruptcy Law and allocated a huge sum for Existing MSME Units as well as new Startup. Now, the main focus of Government is in making “Atamnirbhar Bharat” where government are taking initiatives to fueled up manufacturing sectors and second we are expecting to build India as Manufacturing same, as many announcements are made by our hon’ble Prime Minister like no global tender up to Rs.200 Crore for all fresh Government projects, etc.

Announcements are made by Government; however, the funds will be released through banking channel, which requires documents like basic KYC of Entrepreneur, Income Tax Return documents, good CIBIL Score, GST Records and the most important is Project report which describes how the projects will be started and how the funds raised from the bank will be refunded.

First: On 13th May 2020, Finance Minister Nirmala Sitharaman added the additional principle of turnover along with the investment.

Revised MSME Classification

now Composite Creteria based on Investment and Annual Turnover 

MIRCO: Investment upto 1 Cr. and turnover upto 5 Cr.

SMALL :Investment upto 10cr. and turnover upto 50 cr.

MEDIUM: Investment upto 20 Cr. and turnover upto 100 Cr.

And Second, On 1st June,2020 Monday, the Union Cabinet headed by Prime Minister Narendra Modi officially revised the MSME definition. The recent changes in the definition of micro, small, and medium-sized enterprises made as a part of the Atmanirbhar Bharat Abhiyaan relief package were approved.

The investment and turnover figures were changed to larger values, thereby resulting in a larger number of medium-sized enterprise.   

now Composite Creteria based on Investment and Annual Turnover 

MIRCO: Investment upto 1 Cr. and turnover upto 5 Cr.

SMALL :Investment upto 10cr. and turnover upto 50 cr.

MEDIUM: Investment upto 50 Cr. and turnover upto 250 Cr.

    

DOCUMENTS REQUIRED FOR MSME LOAN

• Duly filled Application form
• Identity Proof: Passport, driving licence, PAN card, Voter’s identity card
• Residence Proof: Passport, lease agreement, trade license, telephone and electricity bills, ration card and sales tax certificate
• Age Proof: Passport, Voter’s identity card, Photo PAN card

FINANCIAL DOCUMENTS

• Last 12 months’ bank statement
• Business registration proof
• Proprietor(s) PAN Card Copy
• Partnership deed copy
• Company PAN card copy
• P&L and balance sheet copy of last 2 years
• Sales tax documents
• Municipal tax document

HOW TO APPLY FOR AN MSME LOAN ONLINE?

• Go to https://udyogaadhaar.gov.in/UA/UAM_Registration.aspx, which is the national portal for the registration of Micro, Small & Medium Enterprises.

Some banks that provide MSME loans

• State Bank of India
• HDFC Bank
• Allahabad Bank
• Central Bank of India
• ICICI Bank
• Bajaj Finserv
• Oriental Bank of Commerce
• Union Bank of India
• Indian Bank

Project Report for MSME loan

1. Introduction

2. Founders Complete Detail along with their experience

3. Techno Feasibility Report

4. SWOT Analysis of your products

5. Location of Project and facilities available

6. Manufacturing Process

7. Applicability of Licenses

8. Means of Financing

9. The financial cost of Project

10. Profitability Statement

MSME LOAN SCHEMES

• MUDRA LOAN

MUDRA (Micro Unit Development and Refinance Agency) was introduced to provide support to the small business owners. MUDRA yojana is further classified between three categories named as Shishu, Kishore and Tarun.

In the Shishu category, an MSME loan is provided up to Rs. 50,000 to a Start-Up enterprise. In the Kishore category, a loan of up to Rs. 5 lakh is provided to the companies that have been running for a while and want to get more established. In the Tarun category, the MSME loan is provided up to Rs. 10 lakh to companies that are established and are looking for expansion. The maximum repayment tenure is of 60 months for all Mudra loan categories.

• CGTMSE

CGTMSE (Credit Guarantee Funds Trust for Micro and Small Enterprises) was introduced to establish a strong credit relief system and promote a better credit flow for the MSME sector. Under the CGTMSE scheme, the loan is backed without any external collateral or third party guarantee.

Here, the MSME loan sanctioned by the Member Lending Institution (MLI) is backed by the scheme which provides the guarantee cover for a large portion of the loan amount. Under CGTMSE scheme, both new and existing medium, small, and micro enterprises, including service enterprises are eligible for a maximum credit cap of Rs. 2 crore.

CGTMSE also offers rehabilitation assistance to the units. Any MSME unit that is in a bad condition due to the factors beyond the control of management is supported by the CGTMSE rehabilitation assistance. The maximum credit cap of Rs. 1 crore is offered to the dilapidated MSME units.

CGTMSE scheme is offered to various institutions which are as follows:

·         Scheduled Commercial Banks

·         Regional Rural Banks (RRBs)

·         National Small Industries Corporation (NSIC)

·         North Eastern Development Finance Corporation (NEDFi)

·         Small Industries Development Bank of India (SIDBI)

• PMEGP

PMEGP is a credit linked subsidy program which was integrated with two other schemes, namely, Prime Minister’s Rojgar Yojana (PMRY) and the Rural Employment Generation Programme (REGP), to generate employment among the educated youth of the country. Under PMEGP scheme, the beneficiary has to invest close to 5-10% of the project cost while the government grants a subsidy of 15-35% of the project. The participating banks offer the rest of the funds as term loans to the business owners.

To avail PMEGP loan, individuals and organizations should meets certain criteria which are listed below:

·         Age Criteria: Min. 18 years & Education Qualification: 8th class passed for   individuals

·         Must be a part of Self-Help Group (SHG)

·         Societies that are registered under Societies Registration Act, 1860

·         Production Co-operative Societies

·         Charitable Trusts

Above mentioned points are mandatory points which must be explained in a project report. Many other points may be added according to the nature of the project. Our main focus is to give in detail the required information to the banker so that they can easily decide that they will get the return of their lend amount or not.

MSME Toll Free No: 18001237376

F A GOOD WRITER LIVES INSIDE YOU, THEN MAIL YOUR BIO, PICTURE WITH YOUR BLOG.... WE WILL SHORTLY PUBLISH IT

JUST MAIL US ON ABIZCHANCELLOR@GMAIL.COM

 AUTHOR: - Adv. Parvindra Nautiyal

Managing Partner At A Biz Chancellor (Advocate, Company Secretary (Aspirant), B.COM Graduate, First Runner-up winner Moot Court Competition Organised by ICSI Noida Chapter)
Mobile No. 8882017384

Disclaimer: This article is reserved for A Biz Chancellor.

No reader should act on the basis of any statement contained herein without seeking professional advice. The results & the interpretation has been done on the basis of my understanding of the Act & Rules, where applicable and with reference to the general articles and analysis. The author explicitly disclaims any financial or other liability of any kind arising on account of any action taken pursuant to the results or interpretation of this document. With respect to information available herein before, the author doesn’t make any warranty, express/implied or assume any liability or responsibility for the accuracy, completeness, or usefulness of such information.

For any help/assistance write us on Abizchancellor@gmail.com

The 3 Lakh Crore Collateral Free Loans For MSMEs A Critical Analysis

The 3 Lakh Crore Collateral Free Loans For MSMEs

A Critical Analysis

Amidst the Pandemic, where the economy of the country is falling, the lockdown stopping everyone from even stepping out of their homes and increase in the number of deaths, there came a silver lining on 13 May, 2020 for all businesses and enterprises. With the country slowly getting ready for the after corona phase, one of the key questions is regarding the revival of the economy. With GDP rapidly falling to all time lows it was imperative for the government to announce drastic measures. The Prime Minister in his last address to the nation on 12^th May, 2020 also spoke about the need to be self dependent or Atma Nirbhar. So everyone in the country held their breaths and waited patiently for the Finance Minister to speak and announce the 20 lakh crore package which the Prime Minister claimed would cater all the sections of the society.

So The Finance Minister Nirmala Sitharaman announced Rs 3 lakh crore collateral free automatic loan for businesses, including MSMEs. The Speech by our Finance Minister has brought a much-needed relief to restart the economy, and build the Aatmanirbhar Bharat Abhiyan focused by our Prime Minister. This move intends to benefit 45 lakh small businesses, she said while shining light on PM Narendra Modi’s Rs 20 lakh crore economic package. The loan will have tenure of four years along with a 12 month moratorium, she added. This time period will give businesses a reasonable turnaround time to get back on their feet. This will be a step towards self reliant India and support “Make in India”. This will also help MSMEs to increase their businesses.[1]

MSME sector is considered as the backbone of the country's economy as the sector contributes over 28 per cent of the GDP and more than 40 per cent of exports, while creating employment for about 11 crore people, second highest after agriculture. To help out stressed MSMEs in dire times, the government will also take burden of Rs 20,000 crore subordinate debt, benefiting 2 lakh such businesses in the country.

The series of measures announced by our Finance Minister will be in assistance to micro and small businesses that are facing severe cash, steps to boost liquidity for non-banking financial companies (NBFCs). That will be really necessary as the business has suffered huge losses due to the lockdown.

In this article we'll assess how these schemes will help the MSMEs and small and local businesses to recover losses and get these loans on for which the government is giving the guarantees from their side. We would also critically analyze the scheme and highlight some of the concerns surrounding this announcement.

Banks, though flush with cash, have been unwilling to lend to this category of borrowers as they fear that the money will not be repaid. It is to break this logjam that the government has said that it will backstop banks up to 3-lakh crore and said that these loans do not need collaterals. Banks are now expected to be more comfortable in assisting this category of borrowers because the risk is zero (since the loans are guaranteed by the central government).

This will act as initial seed money for these small enterprises hit by zero cash flow due to the national lockdown. This loan will help them buy raw materials, pay initial bills and daily wages to employees. In short, this will be like working capital for cranking up their businesses again. The advantages of this scheme are :

●  These loans to MSMEs with one-year moratorium will be one of the strongest point;

●  Securities will be fully guaranteed by Government of India, which will provide liquidity and build confidence in the market;

●    Liquidity measures linked to TDS, EPF and master support to MSMEs, will help and protect many jobs for Indians.[2]

●    The scheme can be availed till 31st October 2020 with no guarantee fee and no fixed collateral.

●    The government has also altered the definition of MSME. With the latest changes, those units which have invested up to Rs 1 crore will now be called micro units as opposed to the earlier limit of Rs 25 lakh. Those units which have a turnover of up to Rs 5 crore will now be called micro units, FM said, adding that a turnover based criteria is being introduced to define small scale businesses.

●   The credit line will be 100% guaranteed by the government through the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), but no guarantee fee.

●  The government has barred Global tenders from procurements up to Rs 200 crores [3]. The move should improve the competitiveness of Indian MSMEs on government contracts. It should also see an increase in registration by MSMEs and Mid-Market businesses on such platforms.

While many of the experts have referred to this package as a game changer but still there are some reservations in one section of society. They are quite skeptical of the relief which could be granted through this package and are advocating a direct transfer of funds .Some of their major arguments are as follows:

●   The pandemic is an extraordinary situation and the world is still wary of setting any time limit till things might get normal. The market players are still not sure about the demand of goods once some of the restrictions are relaxed.

●     Many argue that in this situation who would take fresh loans as the criteria set by the scheme is that only those business enterprises are eligible whose credit limit is upto 25 crores the existing term loans like cash credit limits have been reduced by bank which is a big setback for MSME companies.

● Even after so many weeks of providing relaxations most of the business enterprises are not able to resume their services because of non availability of labour and raw materials. In these circumstances a direct transfer of funds could have been a better solution so as to reduce the fixed expenses of the business enterprises.

●   A direct reimbursement of salaries of the labourers could have been a lucrative option. This would have solved two fold purposes. One it would have encouraged the labourers to stay wherever they were and this would have not lo the mad rush of the migrants to go back to their native places. Second this would have also reduced the fixed costs of the business enterprises and there would have been a quite low level of layoffs.

●  Another key reservation about the scheme is that there are some business industries who have not taken any sort of credit but are now under stress but this scheme does not talk about such industries.

●   The scheme will cover only existing borrowers with outstanding credit limit of up to 25 crore as on 29 February 2020 and having a turnover of up to 100 crore. Although it is being said that this scheme is to help all the MSMEs however, the limit put up by the government on turnover is huge which would be covered mostly by enterprises with strong financial background and only they will be able to get this benefit. This loan according to me would easily be recoverable as giving it to enterprises with huge turnover will keep it secured even without the collateral.

These are some concerns about the scheme. We hope that these are extraordinary situations and the government is making the best possible efforts to solve this crisis by taking strong measures to improve the liquidity in the system. The government has taken a right step in understanding the need of the MSME sector by releasing of emergency credit lines to MSMEs, capping of interest, and credit guarantee which will help them get back on their feet and respond to this crisis and this article just tries to clarify both the perspectives about this scheme.

IF A GOOD WRITER LIVES INSIDE YOU, THEN MAIL YOUR BIO, PICTURE WITH YOUR BLOG.... WE WILL SHORTLY PUBLISH IT

JUST MAIL US ON abizchancellor@gmail.com

AUTHOR: JASLEEN KAUR

 Currently in the Final Year of 3 Year LLB in Law Centre-2, Faculty of Law, University of Delhi

B.Com (DU), Company Secretary (CS) Aspirant,

Technical Content  Writer for the portal Cscartindia.com which caters to Company Secretary Students

.AUTHOR: GURKARAN SINGH

From a CA aspirant, to pursuing bcom hnrs,from someone working at Pwc to someone pursuing law from Faculty of Law Delhi University, life has been a roller coaster ride for Gurkaran Singh. Presently he is pursuing Law from Law centre 2 Delhi University. He has authored a policy document for ministry of law and justice. He has also worked as a research assistant on a book on mediation

Disclaimer: 

No reader should act on the basis of any statement contained herein without seeking professional advice. The results & the interpretation has been done on the basis of my understanding of the Act & Rules, where applicable and with reference to the general articles and analysis. The author explicitly disclaims any financial or other liability of any kind arising on account of any action taken pursuant to the results or interpretation of this document. With respect to information available herein before, the author doesn’t make any warranty, express/implied or assume any liability or responsibility for the accuracy, completeness, or usefulness of such information.

For any help/assistance write us on abizchancellor@gmail.com

---

[1]https://www.financialexpress.com/industry/sme/msme-fin-loans-for-msmes-collateral-free-loans-nirmala-sitharaman-business-rs-20-lakh-crore-economic-package/1957930/

[2] https://bfsi.eletsonline.com/finance-minister-announces-liquidity-scheme-for-msme-nbfcs/

[3]https://www.cnbctv18.com/finance/government-announces-rs-3-lakh-crore-collateral-free-automatic-loan-for-msmes-5911911.htm