Those in need
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As part of the financial package to help the economy deal with the disruptions ( disturbance or problems which interrupt an event, activity, or process ) caused by the imposition ( the action or process of imposing something or of being imposed ) of the national lockdown, Finance Minister Nirmala Sitharaman had announced the provision ( the action of providing or supplying something for use ) of collateral-free loans worth Rs 3 lakh crore for the micro small and medium enterprises (MSMEs). The facility, which was expected to help around 45 lakh MSMEs that have been worst hit by the economic slowdown, was meant to assist these small businesses to meet their obligations such as payment of salaries, rent and other utilities, as their revenue dried up.
In an environment where banks are unwilling to take on the credit risk, extending such a facility, where the government bears the risk, was indeed a welcome step. However, there are concerns that the conditions imposed on those who can avail of the facility — the scheme excludes first-time borrowers and those whose accounts have turned bad — may have blunted ( make or become less sharp ) its effectiveness by excluding a sizeable ( fairly large ) section of the MSME universe from its ambit ( the scope, extent, or bounds of something). This approach needs to be reexamined.
Data from the finance ministry shows that since the scheme’s launch, the total amount of loans sanctioned and disbursed ( Pay out ) by 12 public sector banks and 16 private sector banks stands at Rs 75,426 crore (over 17 lakh accounts), and Rs 32,896 crore (7.11 lakh accounts) respectively. Based on this, the average loan amount sanctioned and disbursed per account works out to around Rs 4.42 lakh and Rs 4.62 lakh respectively, which suggests that only the smallest of MSMEs are availing this facility, indicating their precarious ( dependent on chance; uncertain ) financial position.
However, compared to the scale of economic distress, the relatively low level of disbursements ( the payment of money from a fund ) could be the result of both demand and supply side issues. Demand for credit may be low because, for MSMEs, final consumption demand has fallen. Further, the interest rate charged, despite a cap being imposed, may be too high for them. On the other hand, supply side issues may persist ( continue in an opinion or course of action in spite of difficulty or opposition). Reportedly, only companies with good credit history are able to raise funds, while those most affected by the economic slowdown are unable to avail of the facilities, and continue to struggle.
If the main objective of this scheme was to boost credit flow to the MSMEs, to help them during this period of economic distress, then surely the government should consider both — relaxing some of the restrictions imposed on those who can avail of the scheme, and widening ( Spread ; expand ) the definition to include others. For instance, extending the scheme to individual borrowers — small traders, businessmen and self-employed workers such as truck drivers who borrow in their own name, and account for a sizeable section of the labour force — is a useful suggestion as it will help the wider MSME ecosystem.