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Informist, Friday, May. 2, 2025

 

NEW DELHI – While the government's Credit Guarantee Fund Trust for Micro & Small Enterprises, or CGTMSE, has played a crucial role in facilitating loans to the micro, small and medium eneterprises, there is a need to bring the Trust under a robust regulatory authority to ensure financial discipline for growth, the NITI Aayog said on Friday.

 

"The Trust currently operates without the desired level of regulatory oversight, leading to challenges in balancing fund availability with the financial discipline required for sustainable growth," the government's think tank said in its report 'Enhancing Comeptitiveness of MSMEs in India'. Financial constraints, along with technological and skill gaps, and regulatory hurdles, are the major challenges that Indian MSMEs face, the report said. 

 

 

"To bridge the credit gap and unlock inclusive, scalable finance for MSMEs, the report calls for a revamped CGTMSE, supported by institutional collaboration and more targeted services," the NITI Aayog said. The government, in partnership with the Small Industries Development Bank of India, had set up the CGTMSE in 2000 to facilitate credit guarantee support to member lending institutions for loans to micro, small and medium eneterprises, especially in the absence of collateral.

 

The non banking finance companies are also a vital source of credit for MSMEs, specifically micro-sized enterprises in remote areas, according to the think tank's report. "However, NBFCs' borrowing costs from banks are typically high due to collateral requirements and risk premiums, making it challenging for them to offer competitive interest rates to MSMEs. This situation underlines the need for better on-lending structures and the provision of lower-rate wholesale funding to NBFCs," the report said.

 

The report vouched for scaling SIDBI's role to directly invest in smaller NBFCs, thereby improving their governance, operational capacity, and access to affordable funds. The Standing Committee on Finance had also recently made this same recommendation. 

 

The government's think tank suggested instuting bank loans to NBFCs for further lending to MSMEs under Priority Sector Lending. "This would incentivise banks to support NBFCs, especially when combined with credit insurance schemes by IRDAI that could mitigate NBFCs' risk perceptions and encourage the flow of credit to micro-enterprises," report said.  End  

 

Reported by Krity Ambey

Edited by Akul Nishant Akhoury

 

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