The hesitation in establishing start-ups among Indians has increasingly diminished over the recent years. The challenge facing establishment, however, lies in acquiring the requisite working capital; an additionally daunting process if the idea is still under the stage of conceptualisation. The country’s micro, small, and medium enterprises (MSME) sector comprising 577Cr companies aims to overcome these constraints but has performed poorly as evidenced by the fact that today, less than 5% of MSMEs have access to formal credit.
This failure has led the Government of India to introduce various initiatives and schemes in an attempt to render the process of acquisition of business loans for start-ups and MSMEs through authorized channels as seamless as possible. The Finance Minister, Ms. Nirmala Sitharaman, announced the integration of the MSME sector as part of the Centre’s ₹20L Cr fiscal stimulus package to boost the economy as a response to the lull caused by the Corona-Virus pandemic. Although, traversing the MSME route may seem lucrative for start-ups in an attempt to gain government assistance, the stringent rules to qualify as an MSME and the temporary nature of being considered one may prove to become a deterrent for the small establishments to continue with the process of obtaining such a status.
Nevertheless, the initiatives have induced aspiring entrepreneurs to venture into the realm of business and have provided them with a sense of financial security. Some of the aforementioned schemes are described below-
The name of this scheme is derived from the fact that the notification entailing whether the loan has been approved or disapproved is received within 59 minutes of application. The loans under this scheme aim to provide financial assistance and encouragement for MSME growth in the country. It entails funds being granted by five authorized public sector banks in a streamlined and user-friendly manner which can be attributed to the adoption of automation and technology.
All coir processing MSME startups registered with the Coir Board under the Coir Industry (Registration) Rules, 2008, are eligible for this scheme. The scheme is aimed at supporting the establishment of coir units by being financed by banks in the form of cash credit or composite loans.
Micro-Units Development and Refinance Agency (MUDRA)
MUDRA is an organisation established by the Government of India which aims to provide low-cost credit to micro-business units operating in the manufacturing, trading, and service-related sectors under the pretext of ‘funding the unfunded’. MUDRA Loans are approved and disbursed through public sector banks, private sector banks, co-operative societies, small banks, scheduled commercial banks, and rural banks that come under the scheme. The MUDRA loans are structured as under-
Sishu Loans up to ₹50,000/-
Kishor Loans up to ₹5,00,000/-
Tarun Loans up to ₹10,00,000/-
Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGMSE)
The CGMSE was first launched in 2000 as a monetary support scheme for micro and small enterprises. It offers collateral-free credit to both, new and existing business units, aims to strengthen the credit delivery system, and facilitates the flow of credit to the MSME sector. The scheme provides working capital loans of up to ₹10L, while those credit facilities above ₹10L and up to ₹1Cr are covered under Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).
National Small Industries Corporation (NSIC)
The NSIC subsidy for small businesses offers two forms of financial benefits namely, Raw Material Assistance and Marketing Assistance. The scheme is mainly focused on funding small and medium enterprises who wish to improve and grow their manufacturing quality and quantity.
Headed by SIDBI and launched in 2015, the fund provides loans to enterprises for expansion, technological up-gradation, and modernization. The objective of the scheme is to provide soft loans to MSMEs to meet the required debt-equity ratio for the establishment of an MSME and reap the benefits associated with being considered as one.
This scheme finances technological up-gradation for small businesses in the fields associated with manufacturing, marketing, supply chain, etc. It aims at reducing the cost of production of goods and services for such enterprises and allows them to retain the scope of remaining competitive in local and international markets.
This scheme offers loans ranging from ₹10L up to ₹1Cr to at least one Scheduled Tribe or Scheduled Caste borrower to set up a Greenfield enterprise. It also grants loans to at least one woman borrower per bank branch to promote woman entrepreneurship among the SC/ST communities. So far, 3457 online business loans for start-ups have been sanctioned through the Standup India platform.
Launched jointly by the ISTSL (Indian SME Technology Services Ltd.), in association with the World Bank in September 2016, this scheme aims to fund start-ups with capital to purchase second-hand equipment to implement energy efficiency measures in Indian industries on an end-to-end basis.
Startups, historically, have not been eligible for receiving loans from state-owned financial institutions, given the latter’s preference to lend to asset-heavy and supremely profitable enterprises. Moreover, a significant number of Indian start-ups may be omitted from the category of enterprises benefitting from the ‘Atmanirbhar Bharat Abhiyan’ scheme as the government’s definition of MSMEs is considerably nuanced. “Startups may restructure to classify themselves as MSMEs, but that will depend on their business activities,” says Atul Pandey, partner at Khaitan & Co.
The government, however, continues to promote enterprises both at the macro and micro levels. Whether it be promoting entrepreneurship and unlocking international start-up corridors or offering business loans to start-ups and MSMEs within the country; the process and means of paying heed to innovative ideas by the government continue to be subject to evolution and change.
Written By - Saumya Seth
Edited By - Sravanthi Cheerladinne
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