Assistance under Mudra insufficient for MSMEs

VISAKHAPATNAM: Despite the government initiative to disburse assistance under Mudra (Micro Units Development and Refining Agency) schrme, most of the Micro, Small and Medium Enterprises (MSMEs) are still not able to set up or expand their business units in the State because of various other financial hinderances.

To obtain a business loan, collaterals are necessary at the banks, co-operatives, financial institutions or funding agencies.

The government has provided collateral-free credit of up to '50,000 to MSMEs under Mudra scheme but the funds are not enough for expansion. Small business proprietors, however, often  need much more than that for establishing a manufacturing unit or to expand an existing infrastructure or even to hire more employees.

Mr M. Rajesh, an entrepreneur from Vizianagaram, said that Mudra loans are not meant for new traders and manufacturers. A business loan of minimum '5 lakh is needed to purchase machinery and equipment for setting up a mmanufacturing unit. However, that much finance is not provided for the upcoming micro units under this scheme.

“Bank managers are very cautious while sanctioning a business loan to MSMEs even though they  may forward multi-crore loans to bigwigs from the corporate world irrespective of their past track record. They ask us for collateral security and previous entrepreneurial experience to give a loan of Rs 1 lakh which is so discouraging,” he added.

The MSMEs, in certain cases, receive higher amount of funds under Mudra scheme depending upon certain factors such as revenue model, turnover, and the number of years in which the loan can be repaid. To avail loans from banks and financial institutions, they need to show profits for at least three years and provide collaterals.

Other than Mudra scheme, Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) also gives collateral-free credit facility to MSMEs. The CGTMSE assures the bank that the Trust would make good the loss incurred by the lender up to a certain percentage of the loan.

This loss bearing guarantee ranges from 50-85 per cent of the loan offered, in case an MSME fails to pay up and repay the lender.

Entrepreneurs not aware of APSFC support schemes

Andhra Pradesh State Financial Corporation (APSFC) has many entrepreneur-friendly schemes offering long-term loans and working capital term loans that are collateral-free to promote MSMEs in the State about which many small scale entrepreneurs are not aware of.

Recently, APSFC introduced composite loan scheme. Based on the project, the financial institution offers a loan of up to '25 lakh to young entrepreneurs under this scheme, said Mr M. Vidyasagar, Branch Manager of APSFC, Visakhapatnam.

He added that the loan applications are referred to the head office for the seniors’ perusal and approval. The State body proposes the loan amount depending on the project viability and third party guarantors. Most of the entrepreneurs do not have the knowledge required to prepare a project report which is crucial in the process of acquiring a loan.

The project report should be prepared meticulously by the applicants instead of by a professional CA. The applicants know better about the loan requirement for the project and their repaying capacity. They should prepare the report with each and every detail of the business unit.

According to APSFC, the institution also offers business loan up to Rs 8 crore to an individual and up to Rs 20 crore to an MSME for a period of eight years. But, collaterals are mandatory. The institution gives loan of  75 per cent of the project cost along with 30-100 per cent of the cost of the collateral property.