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Here’s How Emergency Credit Line Guarantee Scheme will Help MSMEs

Under this scheme, borrowers will have a one-year moratorium of repayment, and the interest rate charged by banks/FIs will be capped 9.25 percent, and at 14 percent by NBFCs
BY Jaspreet Kaur
Feature Writer, BusinessEx
May 28,2020

As India continues to face economic distress, more affliction can be felt by MSME. To safeguard the MSME space, the Indian government has recently proclaimed INR 3 lakh crore Emergency Credit Line Guarantee Scheme for MSMEs. The scheme has been launched under the Atma Nirbhar Bharat Abhiyan and will help businesses in the MSME segment to mitigate the bad effects of COVID 19.

Under this scheme,  MSMEs borrowers with upto INR 25 crores of total borrowing can avail an additional 20 per cent of the loan outstanding from banks, NBFCs and other financial institutions (FI), reported CNBC TV18.

The Indian government will be offering 100 per cent guarantee under this scheme to the banks and FIs offering up to INR 3 lakh crore in aggregate.

Explaining the Guaranteed Emergency Credit Line Scheme 

GECL is a loan wherein National Credit Guarantee Trustee Company (NCGTC) offers 100 per cent guarantee to Member Lending Institutions (MLIs) and also, increased in the form of additional working capital term loan facility in case of Scheduled Commercial Banks (SCBs) and FIs. NCGTC also offers additional term loan facility in case of NBFCs, to eligible MSMEs or business enterprises and interested Pradhan Mantri Mudra Yojana borrowers. 

Credit under this scheme would be up to 20 percent of the borrower's total outstanding credit up to INR 25 crore, excluding off-balance sheet and non-fund based exposures, as on February 29, 2020, i.e. additional credit shall be up to INR 5 crore.

How will GECL Help MSMEs?

The scheme has been introduced observing the severe impacts of Coronavirus. The government seeks to provide relief to the MSME segment by stimulating MLI to offer additional loans upto INR 3 lakh at a low cost, in turn, allowing MSMEs to manage their operational  liabilities and reinitiate their businesses.

The benefits that will be offered by the borrowers under this scheme include: 

  1. One year moratorium of repayment will be offered to loan borrowers 
  2. Under this scheme, the interest rate levied by the banks and FIs will be capped 9.25 per cent and 14 per cent by NBFCs 
  3. The scheme also covers borrowers, who are not in default. Thus, borrowers with standard accounts, who have made timely repayments, SMA-0, who are having overdue of upto 30 days, and SMA-1, who are having overdues of upto 60 days, are eligible to avail loans

All loans accredited under GECL will be during May 23,2020 to October 31, 2020. Besides this, the government has pronounced several plans for elevating the business ecosystem and safeguard MSMEs for economic distress.

Other Moves Taken to Help MSMEs

Apart from the latest move, the government has proclaimed an array of programmes and schemes to reduce suffering of MSMEs in the country. Here are those plans: 

  1. In the latest financial package, the government permitted MSMEs to display little collateral for getting loans from banks. Non-defaulting small enterprises having outstanding debt of roughlyINR 25 crore and sales of around INR 100 crore were rendered additional working capital of 20 per cent.   
  2. Promoters of stressed or defaulted MSMEs were offered credits up to 15 per cent of their shareholding in the business unit. Promoters can, in turn, infuse money and elevate their enterprises from economic downturn. They can avail loans to a maximum of INR 75 lakh.  
  3. Equity funding aid was also offered to MSMES having growth potential by the government through  establishment of a INR 10,000 crore fund, which will augment more capital of INR 50,000 crore into small businesses.
  4. The government had changed the definition of MSME. The new definition will include higher investment limits and add an additional norm based on revenue. It will change the current definition based on self-proclaimed investment in plant and machinery. This move will lead ease in doing business and persuade them to be more active in their growth. However, the new definition will not differentiate between manufacturing and service segments.
  5. The government declared INR 30,000 crore special liquidity scheme for NBFCs, house finance companies (HFCs) and microfinance institutions (MFIs). Under this move, banks will be allowed to invest, through primary or secondary market transactions, in debt papers issued by HFCs, NBFCs, and MFIs.
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