Easy Credit Access For MSMEs At Lower Interest Rates: Know Everything

The latest quarterly survey conducted by industry body FICCI, which received responses from over 400 manufacturing units across nine major sectors has highlighted the need for easier and more affordable access to credit for micro, small, and medium enterprises (MSMEs). The survey emphasized the importance of providing cheaper financing options, including working capital loans at lower interest rates in order to foster growth in sectors such as capital goods and construction equipment, electronics and white goods, machine tools, metal and metal products. Read More Business News on our website.

According to the survey, banks are currently reluctant to implement the government scheme called Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTSME) and no banks are willing to extend credit under this scheme. The survey suggested that this issue needs to be addressed in order to support the growth of the electronics and white goods sector. The average interest rate paid by manufacturers remained relatively unchanged from the previous quarter at just over 9 percent with the highest rate of credit being raised at 16 percent per annum.

The survey also proposed an extension of the moratorium for Emergency Credit Line Guarantee Scheme (ECLGS) loans for the MSME sector as well as a reduction in compliance requirements for MSMEs to enhance ease of doing business and reduce costs. The survey collected responses from both large units and SMEs in various sectors, including automotive and auto components, capital goods and construction equipment, cement, chemicals, fertilizers and pharmaceuticals, electronics and white goods, machine tools, metal and metal products, textiles, apparel and technical textiles, toys and handicrafts and miscellaneous sectors.

Notably, after experiencing a revival of the Indian economy in FY22, the growth momentum continued in subsequent quarters of FY23, with 55 percent of respondents reporting higher production levels in Q4 of FY23, as highlighted by the survey.

Furthermore, the survey revealed that more than 57 percent of the respondents anticipated a higher level of production in Q1 FY24, with a moderate increase in production in single digits. This positive outlook was also reflected in the order books, as 58 percent of the respondents in Q1 reported a higher number of orders, and demand conditions remained optimistic in Q2 as well.

However, the expansion plans of the respondents were hindered by several major constraints, including high raw material prices, increased cost of finance, burdensome regulations and clearances, elevated logistics costs due to high fuel prices, reduced global demand, a large influx of low-priced imports into India, a shortage of skilled labor, and volatile prices of certain metals. These factors, along with other disruptions in the supply chain had a significant impact.

Consequently, there was an upward trend in cost pressures on manufacturers in Q1 FY24. The survey highlighted that the cost of production as a percentage of sales had increased for 77 percent of the respondents, which was higher than the 73 percent reported in the previous quarter’s survey.