MSME boost: Govt widens scope of ECLGS ahead of festive season
In order to increase utilisation of the Emergency Credit Line Guarantee Scheme (ECLGS) and provide support to small businesses ahead of the festive season, the government has widened the scheme’s scope by increasing the borrowing limit for availing loans.
The ECLG scheme has been extended by six months to March 31, 2022, or till guarantees of ~4.5 trillion are issued, whichever is earlier. However, loans under the scheme can be disbursed till June 30.
The pace of loan sanctions under the scheme had slowed, and advances of about ~2.86 trillion were sanctioned as of September 24. Loans sanctioned as of July 2 were ~2.73 trillion. With economic recovery and further modification, the scheme is expected to pick up pace, an official said.
The scheme has been modified to provide credit support of an additional 10 per cent, or up to 40 per cent, of total credit outstanding as of February 29, 2020 or March 31, 2021 --whichever is higher -- to existing borrowers of ECLGS 1.0 and 2.0. Those borrowers who have not availed ECLGS 1.0 and 2.0 can avail credit of up to 30 per cent of credit outstanding as of March 31, 2021. Under ECLGS 1.0 and 2.0, loans were guaranteed up to 30 per cent of outstanding credit as of February 29, 2020. As the cut-off date to avail loans under the scheme has been changed to March 31, 2021 from February 29, 2020, existing borrowers can avail incremental credit under that limit. “Borrowers who have availed assistance under ECLGS and whose credit outstanding as of March 31, 2021 (excluding support under ECLGS) is higher than that of February 29, 2020, shall be eligible for incremental support within the cap stipulated under ECLGS 1.0, 2.0, or 3.0,” said a statement by the Ministry of Finance.
The modification introduced would ensure businesses, adversely impacted by the second wave of Covid-19, get enhanced, collateral-free liquidity, the statement said. “This provides much-needed support to all the ECLGS borrowers (that mainly consist of MSME units) in time for the busy/festival season,” it added.
Guarantee for MFIS utilised
The guarantee cover of ~7,500 crore provided to microfinance institutions for lending up to ~1.25 lakh to small borrowers has been fully utilised, the finance ministry tweeted.
The scheme supported 92 non-banking financial companies-microfinance institutions through 20 scheduled commercial banks, the ministry said. “The scheme played a catalytic role in facilitating credit to bottom-of-the-pyramid borrowers in these difficult times,” it said.
Under the scheme, the interest rate was capped at marginal cost of funds-based lending rate plus 2 per cent. Maximum loan tenure is 3 years, and 80 per cent of assistance was to be used by MFI for incremental lending.