UP Government Sets Up Asset-based Financing to Aid MSMEs

The pandemic has severely hit the companies, thus, reducing their earnings by 20 per cent or 50 per cent, according to a recent report.
  • BY Jaspreet Kaur

    Feature Writer, BusinessEx

  • |
  • Oct 21,2020
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  • 13 Mins Read

To aid the micro, small and medium enterprises (MSME) sector, the UP government has decided to give cheap credits. The start government is planning to establish an asset-based lending to lessen the financial burden on MSMEs, Pioneer reported. 

The pandemic has severely hit the companies, thus, reducing their earnings by 20 per cent or 50 per cent, according to a recent report.  

A new financial division will be a joint venture (JV) between UP Industrial Consultants Limited (UPICO) and UP Laghu Udyog Nigam Limited. The new entity that is supported by the National Small Industries Corporation (NSIC) will render loans at attractive rates to small and medium enterprises, according to the media report.  

In asset-based financing, the credit is secured by collateral through inventory, equipment, receivables, or other property that is purchased by the borrower.

"We are working with the NSIC for a proposed asset-based lending entity. A concept paper is being prepared in this regard. The Board of UP Laghu Udyog Nigam Limited has also cleared the proposal for setting up the ABL for the benefit of the MSME sector," Chief Secretary (MSME and Export Promotion), Navneet Sehgal told the cited media agency. 

Plans to Aid MSMEs

Besides offering asset-based financing, the state government has planned to develop industrial

enclaves spanning 5-50 acres under public private partnership (PPP) model to boost the local economy in Uttar Pradesh.

After the lockdown, the MSME industry had come on a virtual standstill in the state, ceasing activities of enterprises dealing in manufacturing and supplying essential commodities. The government is taking adequate measures to speed up recovery of economic activities. According to the media report, the state government had arranged a capital credit of over INR 26,000 crore for nearly 10 lakh MSME companies in the UP. The beneficiaries comprised nearly 4.35 lakh existing and 5.4 lakh new units across different segments.

At the same time, UP Laghu Udyog Nigam's Board also cleared the proposal for establishing flatted or vertical factory complexes in four districts at an investment of INR 345 crore. The flatted factory concept is basically about an industrial building having over one storey. The factory is separated into different units, thus, different activities are carried there such as manufacturing, assembly and associated storage functions. 

Such factory complexes will be established in Ghaziabad, Agra, Gorakhpur, and Lucknow for non-polluting industrial units. It is believed to overcome the dearth of space for new companies and promotion of startups.

According to the media report, the blueprint for Agra flatted factory complex has already been drawn and it will entail investment of INR 185 crore and accommodate 245 units. 

Plans by Central Government 

To help the MSMEs across the nation, the central government has taken several steps. Atmanirbhar scheme, Emergency Credit Line Guarantee scheme, and loan moratorium are some of the effective measures. These moves have addressed woes of the MSMEs but could not help them stand upright like preCOVID times. Many small businesses are not able to avail these schemes and have to close down their business permanently. 

There is a lack of a proper system to offer loans to the MSMEs. Banks are acting as mediators in the process and according to the mandate, offering credit to the existing borrowers only. In this case, small businesses, who are seeking for loans, are left in the middle of the road and do not have any way to go. 

The government did not address the needs of all MSMEs but acted for a handful of companies that are secured borrowers. It is one of the reasons for the fallout of the Indian economy. 

In this post-lockdown phase, veteran entrepreneurs are reinitiating their business from the scratch. This shows hard work, determination and resilience of the Indian MSMEs that rise up in unfavourable conditions as well.

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