Ease of doing business for MSMEs: The Parliamentary Finance Standing Committee has suggested developing the Udyam portal into a central one-stop-shop data repository for the MSME sector by linking it to other databases such as CIBIL data, service invoice data public, etc. The portal is currently already linked to the Government e-Portals of the Marketplace (GeM), Income Tax, GST and Trade Debt Discounting System (TReDS). However, “the committee still believes that whatever data is available regarding the MSME sector, it exists in a fragmented way and there is no real integration between multiple datasets… Such a database could then be consulted by lenders, after obtaining the consent of the MSME borrower, to extend credit to them in a timely manner,” says a report tabled by the committee in Lok Sabha on enhancing the flow of credit to the sector. MSME.
Minister Nirmala Sitharaman had also announced the linking of Udyam portal with e-Shram, National Career Service (NCS) and Atmanirbhar Skilled Employee-Employer Mapping (ASEEM) in the budget to improve skills and recruitment of MSMEs.
The committee also advocated for the creation of an “UPI for MSME Loans” for all MSMEs in the formal sector to access low-cost working capital loans in a mobile, contactless, paperless and Low cost. “To enable this digital vision of MSME credit to come to life, the committee believes that information should be used to replace physical collateral: these are cash flow loans or flow-based loans,” notes the report presented on 8 April.
While lenders may not be comfortable making large loans to MSMEs over a period of five or 10 years without collateral, small unsecured loans over a period of 60 or 90 days can be profitable for lenders because the transaction cost under the cash-flow-based approach can be “sufficiently” reduced, the parliamentary panel said.
For MSMEs registered at Udyam, the panel also recommended a “Vyapar” credit card scheme for MSMEs under SIDBI, similar to National Bank’s Kisan Credit Card (KCC) scheme for Agriculture and Rural Development (NABARD) to bring millions of MSMEs into the formal financial system, including street vendors and kirana shops.
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The credit card can provide short-term working capital loans at low interest rates and can be extended to provide unsecured loans like the Rs 1 lakh unsecured facility available to KCC holders, said the panel.
According to the report, the need to formalize the credit ecosystem for MSMEs has grown in importance as less than 40% of the 6.34 million MSMEs, according to government data, borrow from the formal financial system. Additionally, the lack of updated data on the total number of MSMEs in the country and their profile has impacted the growth of the sector.
The last MSME survey was conducted by the National Sample Survey Office (NSSO), Department of Statistics and Program Delivery six years ago as the government revised the definition of MSMEs in 2020 to expanding the reach of the sector by bringing businesses with turnover up to Rs 250. crore under MSMEs.
“The committee strongly recommends that the survey/census of MSMEs according to the new definition be carried out at the earliest in order to estimate the actual number of MSMEs in the country as well as realistic assessments of their credit needs. This survey should be conducted on a regular basis and, in addition, SIDBI can develop an annual fact-based MSME finance report to guide policies and investments,” the panel suggested.