MSME Schemes

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MSME Schemes

MSME is the industrial sector’s backbone and plays a crucial role in employment opportunities and correcting the country’s regional imbalances. MSME Schemes ensures rapid industrialization of backward areas and equitable distribution of national wealth. With a share of 9% in the country’s GDP, 45% in overall manufacturing output, and 40% in the country’s exports, MSME sectors’ importance cannot be downplayed.

Considering the significance of MSMEs to the economy, various MSME Schemes have been launched by the government to develop and promote the MSME sector in India. Taking a proactive stand, the government ensures the benefits of the schemes reach the MSMEs on time. Under the ‘Atmanirbahar Bharat Package, some of the steps taken by the government include:

  • Rs 3 lakh crore of collateral-free automatic loan facility for MSMEs. It was meant to purchase the raw material, meet the operational liabilities for kick-starting the business.
  • MSME definition was revised to benefit the sector. 
  • Domestic industries were encouraged by disallowing the global tenders to procure goods to the tune of Rs 200 crore.
  • Government and other Public Sector Units (PSUs) will now clear all the MSMEs’ dues within 45 days.

Revision of MSME classification 

To support and develop the MSME sector, the government under Atmanirbahar Bharat Abhiyan has revised the MSME classification by inserting a composite criterion for investment and annual turnover. Moreover, the distinction in defining the manufacturing and services sector has been done away with. The removal of the distinction between the two sectors will help in bringing parity. Following is the revised MSME classification:

MicroSmallMedium
Investment in Machinery/Equipment

Not more than – Rs 1 cr

Annual Turnover – 

Not more than – Rs 5 cr

Investment in Machinery/Equipment

Not more than – Rs 10 cr

Annual Turnover – 

Not more than – Rs 50 cr

Investment in Machinery/Equipment

Not more than – Rs 50 cr

Annual Turnover – 

Not more than – Rs 250 cr

 

Different MSME schemes launched by the government

Scheme 1 – PM Employment generation program and other credit-support MSME Schemes

  • PM Employment generation program (PMEGP)

Khadi and Village Industries Commission (KVIC) acts as a nodal agency to implement the PMEGP scheme on the National level. The objective is to create employment opportunities in the MSME sector. At the state level, State KVIC Directorates, State KVIBs – Khadi & Village Industries Boards, DICs – District Industries Centres (DICs), and different designated banks implement the scheme.

  • Credit guarantee trust fund for Small and Micro Enterprises (CGTMSE)

The Credit Guarantee scheme is launched by SIDBI and the Ministry of MSME to provide required credit to MSMEs. The SIDBI and GOI bear the entire corpus of the CGTMSE.

  • Interest subsidy eligibility certificate (ISEC)

This scheme ensures that the funding gap between the resource requirement and availability from budgetary sources is bridged by mobilizing required funds from the banking institutions.

Scheme 2 – Development of khadi, village, and coir industries

  • Market promotion and development scheme (MPDA)

The MPDA scheme combines various MSME scheme that include marketing, promotion, and market development assistance.

  • Revamped SFURTI scheme

The MSME Schemes of funds for the regeneration of traditional industries (SFURTI) is revamped to organize traditional industries better. This, in turn, will help create sustainable employment opportunities, enhance the marketability, better equip and train the artisans, and boost the governance of the cluster systems throughout the country.

  • Coir vikas yojana (CVY)

The scheme’s main objective is to upgrade, modernize, and establish new units under CITUS(Coir Industry Technology Upgradation Scheme). It further takes steps to promote the goods in the domestic and export markets.

Scheme 3Technology up-gradation and Quality certification

  • Financial support under the ZED certification scheme (ZED)

Under the Make in India initiative, the government intends to support the MSMEs to manufacture quality goods with zero defect and inculcate energy-efficient practices to ensure a zero effect on the environment. The scheme promotes Zero effect & Zero defect (ZED) type manufacturing in India. Through the ZED assessment model, the improved quality manufactured goods are to be certified at various levels on parameters such as – safety, quality performance, reduction in wastage, environment-friendly practices, and more.

  • A scheme for promoting innovation, rural industry, and entrepreneurship (ASPIRE)

The ASPIRE scheme launched by the government is ambitious and intends to meet the following :

  • Create more jobs and reduce unemployment
  • Promote the entrepreneurial culture in the country
  • Boost economic development
  • To facilitate innovative solutions for social needs.
  • To promote innovation and make the MSMEs competitive.
  • National manufacturing competitiveness program (NMCP)
  • Credit linked capital subsidy for technology up-gradation (CLCSS)

For technology up-gradation by different MSEs, the CLCSS scheme provides a 15% subsidy up-to Rs 1 cr of additional investments. Technology up-gradation ensures state of the art technology to enhance the competitiveness of the MSEs.

  • Marketing support/assistance to MSMEs (Bar code)

Financial support is extended to MSMEs, that are encouraged to adopt bar codes for their products.

  • Lean manufacturing competitiveness for MSMEs

Financial assistance is given to MSMEs to apply different lean manufacturing techniques for improving competitiveness in manufacturing.

  • Design clinics for design expertise to MSMEs

Financial assistance provided by the government to MSMEs for developing new design strategies through consultancy and project intervention.

  • Technology and quality up-gradation support to MSMEs

The objective is to encourage MSMEs to adopt energy-efficient technology in manufacturing units. The clean development mechanism will ensure reduced production costs while improving the competitiveness of the products.

  • Entrepreneurial and managerial development of SMEs through an incubator

Under the scheme, financial assistance is given to set up business incubators. Host institutions engaged in exploring and implementing innovative ideas concerning their service sectors are the scheme’s beneficiaries. 75%- 85% of the project cost, with a maximum limit of Rs 8 lakh, is supported under the scheme. The scheme aims to assist in technological advances through ingenious ideas financially.

  • Enabling the manufacturing sector to be competitive through QMS & QTT

The scheme aims to encourage the MSEs to understand and follow the latest – ‘Quality Management Standards’ and ‘Quality Technology tools.’ Financial assistance is provided to MSMEs through expert organizations for implementing the QMS and QTT.

  • Building awareness of – Intellectual Property Rights (IPR)

These MSME Schemes enhance awareness among different MSMEs regarding Intellectual property rights. Measures are taken to protect the ideas and business strategies of the MSMEs.

Scheme 4 – Marketing promotion MSME Schemes

  • International cooperation

The following activities are covered under the scheme:

  • MSME delegations to visit other countries for trade fairs, exhibitions, workshops, seminars, and more. The idea behind is to understand new areas in technology up-gradation/infusion, joint ventures, exploring markets for products, etc.
  • MSME delegates to participate in trade fairs, international exhibitions, and buyer-seller meetings in foreign locations.
  • Government organizations/Industry associations to hold international conferences, seminars, summits, workshops in India related to the MSME sector.
  • Marketing assistance scheme

The following activities are covered under the scheme:

  • To organize exhibitions abroad and participate in international trade fairs/exhibitions
  • To co-sponsor events organized by other agencies, organizations, or industry associations
  • To manage buyer-seller meet, intensive publicity campaigns, and marketing promotion
  • Procurement and marketing support scheme (P&MS)

The following activities are covered under the scheme:

  • MSEs are encouraged to develop domestic markets and work to promote – Newmarket access initiatives.
  • Facilitating market linkages that assure effective implementation (of public procurement policy) of 2012 order for MSEs.
  • To educate the MSME sector on different facets of Business development.
  • Create awareness of trade affairs, new market techniques, and related topics.

Scheme 5 – Entrepreneurship and skill development program 

  • Entrepreneurship skill development program (ESDP)

These programs are regularly organized to inspire youth and enlighten them on different aspects of industrial-activity necessary to set-up MSEs. The programs are organized in different technical institutions such as ITIs, Polytechnics, among others.

  • Assistance to training institutions (ATI)

Financial grant is extended to national level training institutions that are functioning under the MSME ministry. Its main objective is:

  • To create and strengthen infrastructure
  • To support entrepreneurship and skill development programs.

Scheme 6 – Infrastructure Development Programme

  • Micro and Small enterprises cluster development (MSE-CDP)

The cluster development approach has been adopted by the Ministry of MSME to increase competitiveness, enhance productivity, and capacity building of Micro and Small enterprises. Under the MSME Schemes, financial assistance is provided to establish Common Facility Centers, raw material depots, effluent treatment, R&D, etc. The financial aid is also meant to create or upgrade infrastructural facilities in the existing or new industrial areas or clusters of MSEs.

Scheme 7 – Scheme of surveys, studies, and policy research

Scheme 8 – National SC-ST hub

Scheme 9 – Scheme of information, education, and communication

MSME LOANS

Credit finance through different financial institutions is extended to MSMEs for a variety of purposes, that includes:

  • To meet working capital requirements
  • To enhance cash flow
  • To expand business
  • To buy new machinery/equipment and more.

The financial institutions, including Banks and NBFCs, offer MSME loans without any collateral as security by borrowers.

Different MSME Schemes are launched by the government to offer MSME loans to the sector; some of the schemes are:

1)  MUDRA loan scheme

MUDRA or Micro Unit Development and Refinance Agency gives loans to the MSME sector under MUDRA Yojana. The MUDRA loans are classified into three categories:

Shishu loansloans up-to Rs 50,000Start-ups & new business
Kishor loansloans between Rs 50,000 –   Rs. 5, 00,000For new machinery/expansion/ raw material etc.
Tarun loansLoans from Rs 5,00,000 – Rs 10,00,000Established businesses

 

2)  Credit Guarantee Funds – Trust For Micro & Small Enterprises (CGTMSE)

The scheme provides better credit flow to the MSME sector. The MSME loans under the CGTMSE scheme is offered without any third-party guarantee or collateral. Under the scheme, both the new and existing MSMEs, including service entities, are eligible to apply for funds up-to Rs 2 cr (maximum credit cap).

Rehabilitation assistance is also provided to distressed business enterprises under the CGTMSE scheme. Any MSME unit reeling under financial stress due to unfavorable conditions (beyond management’s control) can seek rehabilitation assistance. The assistance provided under the scheme is to the tune of Rs 1 cr (maximum credit cap).

  •  Prime Minister employment generation program (PMEGP) 

The scheme offers employment opportunities to skilled and educated youth. Under the PMEGP scheme, 5% – 10% of the Project cost is to be paid by the applicant; the government grants a 15% – 35% subsidy while the banks bear the rest of the project cost.

Beneficiary CategoryBeneficiary’s ShareSubsidy Rate – Urban

From Government

Subsidy Rate – Rural

From Government

General       10%     15%      25%
Special       5%     25%      35%

 

Eligibility Criteria under PMEGP

  • Age limit – Minimum 18 years
  • Education qualification – For individuals 8th pass
  • Registered societies under Societies Registration act, 1860
  • Production cooperative societies
  • Charitable trusts

Interest rates On MSME loans

The interest rates charged by different financial institutions vary and depends upon factors such as- 

  • Loan amount
  • Repayment tenure
  • Applicant’s profile
  • Credit history of the applicant
  • Repayment capability
  • The economic viability of the project

 

Interest rates on MSME loans

Bank/NBFCInterest Rate (p.a.) and Onwards
HDFC Bank13%
SBI (Mudra Loan)9.75%
Bajaj Finserv18%
Lendingkart Finance18%
Axis Bank15.5%
ICICI Bank13%
Kotak Mahindra Bank16%
Punjab National Bank (Mudra Loan)10.30%
Corporation Bank10.30%
Bank of India10.20%
IDFC First Bank18%
HDB Finance18%
Fullerton Finance17%
Flexiloans18%
RBL Bank18%

 

Features of MSME Loans

  • Loan types – Working capital loans, Equipment finance, term loans, MUDRA loans, and more
  • Repayment timeline – Between 12 months to five years, extendable in exceptional cases
  • Collateral – Not required; the only exception is term loans
  • Credit facilities – Overdraft, Cash credit, line of credit, merchant cash, bill discounting, etc.
  • Flexible repayment options
  • Quick processing of papers and fund disbursal
  • Simple documentation
  • Simplified balance transfer
  • Backed by full (100%) – Credit guarantee scheme

Documents required for MSME loans

  • Viable business plan
  • Duly filled MSME loan form
  • Passport size photos
  • KYC documents (applicants)
  • ID proof – PAN card, passport, driving license, voter ID card
  • Resident proof – Ration card, utility bills(water bills, electricity bills, telephone bills), trade license, lease agreement, sales tax certificate, and passport
  • Income proof
  • Business existence proof
  • Rent agreement, sales deed, Memorandum of association, Article of association
  • Copy of license, certification, and registration
  • Pan card(applicant/company)
  • Sales tax documentation
  • Last 12 months Bank statements

MSME Loan eligibility

  • Age limit – Minimum age 18 years – Maximum age 66 years
  • Indian citizen 
  • Good credit score
  • Last two years, IT returns
  • Company in operation (2 years)

How to apply for an MSME loan?

  • Fill up the application form available online
  • Submit the form along with the required documents
  • Once the documents are processed, the money is sanctioned and transferred to the account.

MSMEs are instrumental in the smooth functioning of large companies. The ancillary units(MSME) supply the required raw materials to big industries, and thus the health of MSMEs is vital for a vibrant economy.

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