MSME LOANS 2020
As we all know that on 12th May 2020 our Honorable Prime Minister Announced a budget of Rs. 20 Lakh crore for MSME under Aatm Nirbhar Bharat Package. There will be a 100% credit guarantee cover and to Banks and on principal and interest and the scheme can be availed till October 31, 2020. This is expected to benefit 45 lakh units. To provide stressed MSMEs with equity support, Government will also facilitate provision of Rs. 20,000 crore as subordinate debt.
Union Finance Minister Nirmala Sitharaman on Wednesday announced Rs 3 lakh crore collateral-free automatic loans for businesses, including MSMEs.
Sitharaman stated that borrowers with up to Rs 25 crore outstanding and Rs 100 crore turnover will be eligible for these. The loans will have a four year tenor with a moratorium of 12 months on principal payment, while interest will be capped, she added.
New MSME Definition
The distinction between the manufacturing and services enterprises has been removed by making the investment amount and annual turnover similar for enterprises engaged in both the sectors.
MSME – Merged Criteria: Investment and Annual Turnover |
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Sector/Enterprise Type |
Micro Enterprise |
Small Enterprise |
Medium Enterprise |
Manufacturing & Services Sector, Both |
Investment less than Rs. 1 crore Turnover less than Rs. 5 crore |
Investment less than Rs. 10 crore Turnover up to Rs. 50 crore |
Investment less than Rs. 20 crore Turnover up to Rs. 100 crore |
Key Takeaways of New MSME Definition introduced in ‘Atmanirbhar Bharat Abhiyan‘ or Self-reliant India Scheme 2020 by Government of India.
MSME loans are offered to Micro, Small and Medium Enterprises (MSMEs) by financial institutions that include banks and NBFCs. MSME loans are also offered by government with the help of various schemes which are further discussed. Government Schemes that come under MSME loans include Mudra Loan, CGTMSE, PMEGP, etc. These schemes ensure that the new and existing entrepreneurs in the country get the necessary financial support and funding for their businesses.
MUDRA (Micro Unit Development and Refinance Agency) was introduced to provide support to the small business owners. MUDRA yojana is further classified between three categories named as Shishu, Kishore and Tarun.
In the Shishu category, an MSME loan is provided up to Rs. 50,000 to a Start-Up enterprise. In the Kishore category, a loan of up to Rs. 5 lakh is provided to the companies that have been running for a while and want to get more established. In the Tarun category, the MSME loan is provided up to Rs. 10 lakh to companies that are established and are looking for expansion. The maximum repayment tenure is of 60 months for all Mudra loan categories.
CGTMSE (Credit Guarantee Funds Trust for Micro and Small Enterprises) was introduced to establish a strong credit relief system and promote a better credit flow for the MSME sector. Under the CGTMSE scheme, the loan is backed without any external collateral or third party guarantee.
Here, the MSME loan sanctioned by the Member Lending Institution (MLI) is backed by the scheme which provides the guarantee cover for a large portion of the loan amount. Under CGTMSE scheme, both new and existing medium, small, and micro enterprises, including service enterprises are eligible for a maximum credit cap of Rs. 2 crore.
CGTMSE also offers rehabilitation assistance to the units. Any MSME unit that is in a bad condition due to the factors beyond the control of management is supported by the CGTMSE rehabilitation assistance. The maximum credit cap of Rs. 1 crore is offered to the dilapidated MSME units.
Eligibility of CGTMSE Scheme
CGTMSE scheme is offered to various institutions which are as follows:
CGTMSE scheme aids all new and existing medium, small, and micro enterprise borrowers who fulfil the conditions mentioned below:
PMEGP is a credit linked subsidy program which was integrated with two other schemes, namely, Prime Minister’s Rojgar Yojana (PMRY) and the Rural Employment Generation Programme (REGP), to generate employment among the educated youth of the country. Under PMEGP scheme, the beneficiary has to invest close to 5-10% of the project cost while the government grants a subsidy of 15-35% of the project. The participating banks offer the rest of the funds as term loans to the business owners.
Subsidy and funding under PMEGP
Beneficiary Categories |
Beneficiary’s Share (of Total Project) |
Subsidy Rate (from Govt.) – Urban |
Subsidy Rate (from Govt.) – Rural |
General |
10% |
15% |
25% |
Special |
5% |
25% |
35% |
To avail PMEGP loan, individuals and organizations should meets certain criteria which are listed below:
Sub-Schemes offered under Mudra Loan Yojana: Mudra loan or Mudra Yojana comes with sub-schemes designed for specific business needs and requirements. The section includes sub-schemes such as: