Finance Minister Nirmala Sitharaman has asked the Small Industries Development Bank of India (SIDBI) and the banking sector to move beyond standard loan products for Micro, Small and Medium Enterprises (MSMEs). She has asked banks to create customised models for MSMEs. What this means? Let’s understand.
She said that India’s small businesses have different needs and require customised credit solutions based on their business cycles. She said that “standard products cannot serve non-standard businesses.”
The Finance Minister explained that different businesses earn income at different times. For example, a business linked to agriculture does not earn money every month. A resort may earn more during tourist seasons. A garment exporter may receive payment only after goods are shipped. Similarly, a small auto-component supplier may have to wait for invoices to be cleared.
She also pointed out that many women entrepreneurs may have regular business transactions but may not own property in their name.
Therefore, she said, all these businesses should not be given the same loan repayment structure.
Sitharaman stressed that loan products should be designed according to the business cycle of each enterprise.
For agri-processing MSMEs, she suggested that loan repayments should be linked to harvest seasons. For textile exporters, financing should match export cycles. Tourism-related businesses should get repayment schedules that take seasonal income into account.
She said the goal should be to provide the right credit to the right enterprise at the right time and for the right purpose.
The Finance Minister also said that SIDBI should expand its role beyond being only a lender. She said SIDBI should become a market-maker and a risk-sharing partner for MSMEs and startups.
According to her, SIDBI should not remain in its comfort zone as just a lender to small businesses. Instead, it should play a bigger role in supporting the entire MSME and startup ecosystem.
The Finance Minister highlighted delayed payments as one of the biggest challenges faced by MSMEs.
She said that around ₹8.1 trillion is currently locked in pending payments owed to MSMEs.
She added that the government regularly reviews payment timelines of Central Public Sector Undertakings (CPSUs) to ensure that dues owed to MSMEs are cleared within the mandatory 45-day period.
More than 320 million people are employed directly or indirectly through the MSME sector. This makes MSME one of the important sectors in India. That’s why Government is focusing on strengthening MSMEs.
