The provision of employment and the overall development of the country is possible only with a massive motivation towards industrialization and liberalization. While MSMEs contribute proportionately to the holistic prosperity of the economy, the dearth of business and opportunities to set up and start other kinds of business enterprises smashes the prospects for the growth of national economy. It also fails to sustain the demography and demotivates the spirit of economic freedom and new options. It is to cater to these ideals that the growth and development of the MSME sector should be borne in mind. MSME stands for Micro, Small and Medium Enterprises and they fall under two broad categories as listed below.
Manufacturing Enterprises –These are organizations that deal in the production or manufacturing of products. They set up plant and machinery or technologically updated equipment to add value to the final product or improve operations. A Manufacturing Enterprise needs heavy investment in establishing all kinds of Plant & Machinery. For example- Chemical Industry, Electronics, Pharmaceutical Industry, etc.
Service Enterprises: – These include businesses and firms involved in providing services. Apart from that, organizations that need investment in service-related equipment like restaurants, resorts, dry cleaners, etc., are service enterprises.
Manufacturing Sector Enterprises – Investment in plant & machinery
- Micro Enterprises – Less than Rs. 25 lakhs
- Small Enterprises – More than Rs. 25 lakhs but less than Rs. 5 crores
- Medium Enterprises – More than Rs. 5 crores but less than Rs. 10 crores
Service Sector – Investment in equipment
- Micro Enterprises – Less than Rs. 10 lakhs
- Small Enterprises – More than Rs. 10 lakhs but less than Rs. 2 crores
- Medium Enterprises – More than Rs. 2 crores but less than Rs. 5 crores
How to Apply for MSME Finance?
Step 1 – The applicant who is interested in applying for an MSME loan needs to fill an application with his business, financial and personal information.
Step 2 – Then, the process of approval and verification takes place on his documents.
Step 3 – After the approval of the MSME finance option, the MSME loan gets disbursed within 3 working days
Eligibility Criteria for MSME/SME Business Loans
The eligibility criteria for application for MSME Loans are:
- A firm that is operational for at least 6 months.
- A minimum sales turnover of Rs. 90,000 for 3 months before applying for MSME finance.
- The organisation should be legal, legitimised and included in the list of SBA finance.
- The location of the business should be in the positive area as prescribed by the list that is available with the finance companies.
- Trusts, NGOs, charitable and non-profitable firms are not eligible.
- The business should not be in the banned or restricted category.
- Now, the Government has introduced many reforms to provide easy MSME finance to MSMEs and they can avail emergency MSME loans of up to 20% of credit by banks and NBFCs.
- MSMEs with an outstanding loan amount of Rs. 25 crores and a sales turnover of Rs. 100 crores are eligible.
- MSME loans are given the benefit of a 4-year tenor on Principal repayment and moratorium of 12 months.
- Interest is capped, and 100% credit guarantee coverage is provided to all Banks and NBFCs.
- There is no fresh collateral and No guarantee fees.
Equity Infusion for MSMEs – Rs. 50000 crores
- This is applicable for MSMEs who are suffering a shortage of equity and Equity funding for MSMEs.
- Fund of Rs 10,000 crores are offered through mother and a few daughter funds.
- Will expand MSME size and encourage them to be on the main board of Stock Exchanges.
New Definition of MSMEs
- Definition of MSME Registrations have been revised.
- Enhanced limit of Investment to be revised and Introduction of Additional turnover criteria.
- Elimination of the Difference between manufacturing and service sector.
|Existing Classification of MSMEs|
|Criteria – Investment in Equipment or Plant & Machinery|
|Manufacturing Enterprises||Investment > Rs. 25 lakhs||Investment less than > Rs. 5 crores||Investment > Rs. 10 crores|
|Services Enterprises||Investment > Rs. 10 lakhs||Investment > Rs. 2 crores||Investment > Rs. 5 crores|
|Revised MSME classification|
|Composite Criteria – Annual Turnover and Investment|
|Services and Manufacturing||Turnover > Rs. 5 crores
Investment > Rs. 1 crore
|Turnover > Rs. 50 crores
Investment > Rs. 10 crores
|Turnover > Rs. 100 crores
Investment > Rs. 20 crores
Business Loans available to MSMEs
MSME means industries in India which are micro, small or medium enterprises and they contribute importantly to the economy of the nation. There are multiple schemes launched by the government for providing loans for Micro, Small and Medium Loans – MSME loans, Options to get collateral-free loans that finance these MSMEs without guarantee will help them deliver to their utmost capabilities. After getting these collateral-free loans, these businesses deliver to their utmost capabilities to enhance the overall economy of the nation. Some of the most important options of MSME Finance are:
- MUDRA loans – Micro Unit Development and Refinance Agency – which is further divided into three categories:
- Shishu Loan – Loan up to Rs. 50000
- Kishore Loans – Rs. 50000 to Rs. 5 lakhs with variation in rates of interest
- Tarun Loans – Loan allowed up to Rs. 10 lakhs.
- CGTSME – Credit Guarantee Funds Trust for Micro and Small Enterprises – which can provide loans to SMEs up to Rs. 2 crores without collateral.
- NSIC Subsidy – available to SMEs for the procurement of Raw material and Marketing of products and easily available to SMEs who wish to grow and develop their existing businesses. This will help them increase their competitiveness and procure imported and Indian raw material.
- CLCSS for Technological Upgradation – A capital subsidy of up to 15% for eligible business with a maximum limit of Rs. 15000 under the Credit Link Capital Subsidy Scheme specifically designed for the upgradation of the existing technology and to be in sync with the modern running of businesses using the latest technology.
- Public and Private sector banks, International Banks, NBFCs, Regional Banks and Small Finance Banks which provide loans to SMEs without collateral.
Significance of the MSME sector In India
MSMEs at present contribute to 24% of the total GDP in the Services Sector and around 6% of the GDP in the Manufacturing Sector. This is a great figure to substantiate the pivotal position that is occupied by these industries in the economy.
MSMEs employ around 120 million individuals each year and contribute to 45% of the GNE – gross national export. MSME sector attains economic growth and enhancement of national income. It fulfils the social responsibility of contributing to large scale employment. In India, there are more than 63 million registered and unregistered MSMEs. Business loans greatly help in giving a boost to the MSME sector which invariably has a positive impact on economy.