Rescue MSMEs from pandemic by taking pro-active measures

The MSME sector is vital for India's economy, responsible for employing over 120 million people. Unfortunately, the sector was severely hit by the pandemic.

Aware of its importance, the government has already undertaken exceptional work with TLTRO, TLTRO 2.0, Partial Credit Guarantee Schemes, and the Emergency Credit Line Guarantee Scheme (ECLGS) in 2020. Rescuing the sector from the pandemic should be the top priority for the government in the upcoming Budget 2021.

The crucial challenge would be to address lenders' risk appetite in the face of loan default fears. Lending can be encouraged by bringing the existing Credit Guarantee Scheme in line with the ECLGS.

The government must also ensure that NBFCs can access liquidity. This, in turn, would give them the tools to support MSMEs. The 2021 budget needs to set up a dedicated institutional framework for the same (existing or new), which would provide credit enhancements to NBFCs in different formats. A long-term financing institution for NBFCs would be the right revival strategy to tide through liquidity crisis. There are several schemes and systems in place to democratise credit in India, such as OCEN, account aggregators, and co-lending initiatives. The Budget should put into place a governance and oversight framework to protect customer interests.

Provisions for the right framework and liquidity will empower them to digitise and make this the year of recovery for MSMEs.

(The author is Executive Chairman & Managing Director, U GRO Capital)