Growth of the MSME sector is being hindered by the reluctance of banks to sanction loans to entrepreneurs belonging to the sector. According to Union Minister Kalraj Mishra, banks are ignoring RBI guidelines of providing collateral free loans of up to Rs 10 lakh to units in the MSME sector.
"The flow of credit to the micro, small and medium enterprises (MSME) sector is not adequate. They (MSMEs) are facing huge difficulties while availing loans from banks." said Mishra, at an Assocham event. "Despite the provision of collateral free, banks don't sanction loans, causing distress to small entrepreneurs, ignoring RBI guidelines."
Mishra told PTI that he has written to the Finance Ministry in this regard and is awaiting a response from them. According to an RBI directive, banks are mandated not to accept collateral security in the case of loans up to Rs 10 lakh extended to units in the MSME sector, and in some cases can increase that limit for loans up to Rs 25 lakh.
The MSME ministry is urging several state governments to setup a Credit Guarantee Fund Trust, ensuring that banks do not hackle entrepreneurs and instead take up the issue directly with the ministry. To further ease the process, the MSME ministry is also working on a format to streamline the process of filing entrepreneurs' memorandum (EM) through an online system.
With the government's new Manufacturing Policy envisioning the manufacturing sector to power 25 percent of India's GDP within a decade and create 100 million jobs, it's key that such hurdles facing entrepreneurs in the MSME sector be removed.
Apart from being granted loans more easily, the government will also work towards fixing issues in infrastructure, a shortage of trained human capital and public sector control, in order to grow manufacturing in India. "Key policy instruments for achieving the above objective include establishment of National Investment and Manufacturing Zones, self governing and autonomous bodies for industrial townships and proposals to improve access to finance for SMEs in the manufacturing sector," added Mishra.