MSME Credit Guarantee Scheme Saved 1.35 Million Firms, 15 Million Jobs: Report

According to a research report, the government’s Emergency Credit Line Guarantee Scheme (ECLGS), which was implemented in 2020 to help MSMEs affected by the COVID-19 pandemic, has prevented 13.5 lakh businesses from going bankrupt, saving 1.5 crore jobs.

The scheme is the most significant fiscal component of Finance Minister Nirmala Sitharaman’s Rs 20 lakh crore Aatmanirbhar Bharat Abhiyan package, which aims to alleviate the pain caused by the COVID-19-induced shutdown by giving loans to various sectors, particularly MSMEs.

“We believe that ECLGS saved about 13.5 lakh micro, small, and medium-sized business (MSMEs) accounts (including restructured). Micro and small business accounts account for about 93.7 percent of all such accounts,” SBI Research stated.

In absolute terms, the report claims that MSME loan accounts worth Rs. 1.8 lakh crore were rescued from becoming NPA during the period, equating to 14% of all outstanding MSME credit.

“According to our calculations, 1.5 crore workers would have lost their jobs if these units had failed. In effect, the ECLGS saved 6 crore families’ livelihoods (assuming four family members per worker, including herself).”

Gujarat has benefited the most from this scheme, followed by Maharashtra, Tamil Nadu, and Uttar Pradesh.

The National Credit Guarantee Trustee Company (NCGTC) is providing 100 percent guarantee coverage for additional funding of up to Rs. 4.5 lakh crore in the form of a guaranteed emergency credit line (GECL) facility to eligible MSMEs and interested Micro Units Development and Refinance Agency (MUDRA) borrowers under the scheme.

The government has allocated aside Rs. 41,600 crores for this purpose, which will be divided across the current and following three financial years.

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) should be restructured, according to the report, to increase credit flow to the sector.

Interestingly, the CGTMSE portfolio has a more than 55% recovery rate, low portfolio delinquency, and low capital requirement, but it is still an unpopular product, it said, adding that the non-CGTMSE portfolio/collateralised has a 25% recovery rate, high portfolio delinquency, and high capital requirement, but it is still a popular portfolio.

“This might be accomplished by broadening the scope and responsibility of the current CGTMSE portfolio by establishing a new agency to manage the CGTMSE solely, similar to the US Small Business Administration. Given that the Micro sector accounts for more than 90% of all units, CGTMSE coverage may be made mandatory for all businesses with a turnover of less than Rs 2 crore.”

Despite being in existence for two decades, CGTMSE coverage for qualified loans remains abysmally low at less than 10%, according to the report, owing to the intricacies of the product structure.

This could be attributable to a variety of factors, including greater premium outflows for guarantee acquisition and maintenance by borrowers, customers’ desire for asset-backed loans to offset the high cost of guarantee, and a knowledge gap, according to the report.