Government Extends MSME Loan Guarantee Scheme By One Month
A worker folds a sheet of processed leather at a tannery in Jalandhar, India. Photographer: Dhiraj Singh/Bloomberg

Government Extends MSME Loan Guarantee Scheme By One Month

India has extended the government-guaranteed rescue package for small businesses to allow more borrowers to avail such loans during the festive season—a seasonally strong period for businesses.

The emergency credit line guarantee scheme has been extended till Nov. 30 or until the entire amount of Rs 3 lakh crore is sanctioned, whichever is earlier, to such businesses under the scheme, the Ministry of Finance said in a statement.

So far, Rs 2.03 lakh crore has been sanctioned by banks under the scheme to 60.67 lakh borrowers, the statement said. Of this amount, Rs 1.48 lakh crore has been disbursed to borrowers.

The scheme, announced as a part of the government’s Aatmanirbhar Bharat package, aimed at providing emergency credit to micro, small and medium enterprises and self-employed individuals affected by the Covid-19 pandemic. This led to increase in credit to small businesses by 13.8% between March and September 2020, according to credit data released by Reserve Bank of India. Borrowers with credit outstanding up to Rs 50 crore, as on Feb. 29, 2020, and annual turnover of up to Rs 250 crore are eligible for the scheme. Interest rates are capped at 9.25% for banks, and 14% for non-bank lenders, while tenor of loans is four years, including a moratorium of one year on principle repayment.

The loan guarantee scheme has been extended considering the opening up of various sectors in the economy, and anticipated increase in demand during the ongoing festive season, the statement said.

A study conducted by National Institute of Bank Management had found the scheme helped small businesses “immensely” by providing timely funding support to restart business, pay salaries and settle dues to suppliers. However, the study also found that large number of beneficiaries complained about the size of loans offered being small, and some giving the facility a miss due to extensive documentation involved.

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