Benchmarking can ensure effective deployment of CGTMSE

CRISIL SME TRACKER

THE RECENT BUDGET announcement on doubling of the eligible credit limit under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme to ~2 crore from ~1 crore is expected to improve MSEs’ access to capital. MSEs have limited financial resources. Yet, limited inclusion in the formal banking system compels them to largely deploy self-financed capital. Any move to boost flow of formal capital, therefore, augurs well for the sector. However, CGTMSE has so far been the preserve of public sector banks because of directed lending under government schemes.

Private sector banks have been reluctant to lend under the scheme, given the long administrative claim settlement process, the cap on pricing of loans, and the steep guarantee fee that is payable to avail of the guarantee cover. While the inclusion of NBFCs under CGTMSE is a welcome move, the scheme’s success would depend on the issues being effectively addressed.

The government could consider building a claim settlement process linked to a transparent independent benchmark, to avoid any dispute between the insurer and the claimant. It already has the Performance and Credit Rating Scheme wherein MSE borrowers are rated on an eight-point scale, with one being the best, eight the worst and five the average.

Says Manish Jaiswal, Business Head, CRISIL SME Ratings: “The claim settlement process and the credit guarantee commission can be benchmarked to this independent borrower assessment across the credit guarantee life cycle. This will enable credit flow directionally to meritorious borrowers and at the same time enable lenders to take conscious risk and make effective use of capital. Credit flow to the right MSEs can, in turn, potentially trigger employment and growth.”

MSEs have limited finances. Any move to boost flows of capital to them augurs well for the sector