A cluster-based approach to lending is likely to be the best strategy for optimal results in the shortest possible time to accelerate credit flow to the MSME sector
India’s unemployment rate hit 26% and 14 crore people lost employment as per CMIE data released recently. This is the single largest blow to the economy, thanks to prolonged lockdown in the wake of COVID-19 outbreak, and greatest and gravest threat to the demographic dividend that is (was) our strongest point.
Against this background, if any sector can help mitigate it to a great extent, it is Micro, Small and Medium Enterprises (MSME) sector. In this article, the focus will be on credit flow to the sector, presently at 2% to the mandated 20%, for strengthening the MSME backbone to largely shoulder this 14 crore unemployed burden.
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As per a government report, the MSME sector contributes 31.8% of Gross Value Added (GVA), 48.10% of exports, and provided employment to 11.10 crore people. MSMEs are small units with original investment in plant and machinery at Rs 10 crore at the upper end, with sub-limits for small and micro units at Rs 5 crore and Rs 25 lakh respectively.
In terms of recommendations of the Prime Minister’s Task Force on MSMEs, banks have been advised to achieve a 20% year-on-year growth in credit to micro and small enterprises, and a 10% annual growth in the number of micro enterprise accounts.
Source: Business Today
