Centre’s MSME credit scheme finds few takers in Bihar

PATNA: The Centre’s Emergency Credit Line Guarantee Scheme launched in May to give 100% collateral-free loan to MSMEs has found few takers in Bihar owing to low economic activity amid the raging Covid-19 pandemic.
Announced by finance minister Nirmala Sitharaman on May 13, as part of the Centre’s first tranche of economic stimulus, the scheme aims to help MSME borrowers by providing them a pre-approved sanction limit of up to 20% of their total loan outstanding as on February 29, 2020.
While the scheme was implemented to help cash-strapped businesses amid lockdown, the response has been far from encouraging, with most commercial borrowers either opting out or not responding to the sanction letter sent by banks.
The president of Bihar Industries Association (BIA), Ram Lal Khaitan, who also owns a warehouse business in Fatuha, told this newspaper, “Even though I got a pre-approved sanction letter from my bank, I did not avail it. The moratorium on principal repayment is one year but interest has to be paid during this time. At a time when business activities are running low, I found it prudent not to burden my business with additional debt.”
Elaborating on the dull response of eligible borrowers, a bank official based in Patel Nagar, who did not wish to be named, said, “All existing MSME borrowers with an annual turnover of up to 100 crore for FY 2019-20 are eligible to avail this facility. The number of borrowers eligible under the scheme is very less and the ones that are eligible, their businesses have been hit during the lockdown. They are not sure if they would be able to repay the amount in time.”
The eligibility criteria for availing the credit line is that the business enterprise should have a combined outstanding loan of up to 25 crore as on February 29 2020. This is a major hindrance for micro entrepreneurs in the state as they are not eligible for the scheme in the first place.
“Bihar mostly comprises micro entrepreneurs whose annual turnover is nowhere close to 100 crore. Hence a lot of borrowers are not eligible for this line of credit. This scheme is well-suited for big states such as Maharashtra and Gujarat whose economy is dominated by big industries and medium enterprises,” said Abhishek Singh, secretary general of Bihar Entrepreneurs Association.
While some experts attributed the low number of beneficiaries of the scheme to its structural challenges, others expressed concerns over ECLGS long-term benefits to MSMEs in the post lockdown era.
“There has been a slump in overall demand and purchasing power of people due to lockdown. Basic sectors such as food processing have witnessed around 65% slump in demand. The Line of credit extended is 20% of the working capital, which is too low. Therefore, even if the credit is granted, it will mostly go into paying salaries and other overhead costs,” said Satyajit Singh, a leading makhana manufacturer and exporter in the state.
“The need of the hour is to formulate policies that will lead to overall industry revival rather than burdening businesses with additional debt,” added Singh, who is also a member of the national committee for promotion of food processing sector under the Centre’s Covid financial package.