Key Government loan Schemes To Empower India’s MSMEs

With around 30 per cent contribution, MSMEs are considered the spine of India’s GDP. For India’s fast growing medium, small, and micro enterprises, the government has rolled out a series of initiatives aimed at boosting economic growth, fostering entrepreneurship, and providing financial support. These schemes are designed to empower MSMEs by providing accessible loans and other assistance.

Through this article, let’s delve into some details of these programmes that stand to reshape the landscape of India’s micro and small business ecosystem.

First let’s discuss the general and business specific documents required for MSME loans.

When applying for an MSME loan, the required documents are:

Identity proof: Aadhar card, PAN card, Passport, driving licence, Voter’s ID, etc

Address proof: Electricity bill, ration card, lease agreement, trade agreement, etc

Financial documents: Last six months’ bank statement, project turnover, audit balance sheets including profit and loss statements, last two years’ ITR filing report, etc

Specific documents as per the type of business: Vital proof of registration of business such as partnership deed, sales deed, rent agreement, MSME/Udyam registration certificate, copy of licences, etc.

Schemes launched by the government to fund MSMEs:

PSB Loans in 59 minutes

MSME businesses looking to meet their working capital requirements can apply for a digital loan and get the digital approval in just 59 minutes under the PSB59 scheme. With a single application, MSMEs can get digital approval for loans ranging from INR 10 lakh to INR 5 crore.

Under this scheme, businesses can avail of loans at 8 per cent interest rate. Also, 3 per cent loans are reserved for women running MSME businesses.

The scheme aims to ease the process for borrowers who find it hard to avail loans from formal banking channels and seek hassle free credit options.

Credit sanctioned under the 59-minute loan approval scheme grew to 2, 47,273 involving INR 85,194 crore as of September 1, 2023 since the launch of the portal in November 2018. Of the total loans sanctioned, 2,28,273 loans amounting to INR 68,729 crore were disbursed, according to the MSME Ministry data from its dashboard.

How to apply:  

Register using name, mobile number and email id by clicking psbloansin59minutes.com

After successfully registering on the portal, the borrower can select funding requirement i.e. for business purpose or for retail

After selection of fund requirement, provide required details to avail business loan digital approval within 59 minutes

The registration process is completely free.  

Startup India Seed Fund Scheme

To finish fund inadequacy, the government initiated Startup India Seed Fund Scheme for building a resilient startup ecosystem in India and providing better opportunities to budding entrepreneurs.

Department for Promotion of Industry and Internal Trade  (DPIIT) has created Startup India Seed Fund Scheme (SISFS) with an outlay of INR 945 crore to provide financial assistance to startups for Proof of Concept, prototype development, product trials, market entry, and commercialization. Launched on February 5, 2021, the scheme will support an estimated 3,600 entrepreneurs through 300 incubators till 2025.

As of April 30, over 1000 startups have been approved by the incubators for providing financial support of INR 177 crore.

Eligibility:

Startup must be recognized by DPIIT and It must have been incorporated not more than 2 years ago at the time of application.

Startups creating innovative solutions in sectors such as social impact, waste management, water management, financial inclusion, education, agriculture, food processing, biotechnology, healthcare, energy, mobility, defence, space, railways, oil and gas, textiles, etc. would be given preference.

Startups should not have received more than INR 10 lakh of monetary support under any other Central or State Government scheme (Prize money from competitions and grand challenges excluded).

Shareholding by Indian promoters in the startup should be at least 51 per cent at the time of application to the incubator for the scheme, as per Companies Act, 2013 and SEBI (ICDR) Regulations, 2018.

Udyogini Scheme

Udyogini scheme provides subsidized loans to women entrepreneurs from all sections of society including rural and underdeveloped areas. Implemented by the government's Women Development Corporation, the scheme aims to promote women entrepreneurship, financial empowerment, and self-reliance by offering necessary financial assistance.

Under the scheme, an applicant can avail of a loan of up to INR 3 lakh. Udyogini loan is available for businesses categorized under 88 small-scale industries, including fisheries, groceries, bakeries, tailoring shops and others. Interest-free loans are available for women starting a business in the agriculture sector.

For feasible repayment by women entrepreneurs, the government offers up to 30 per cent subsidy on loans under the scheme.

Eligibility:

The age of applicants must be between 24 years and 70 years

Annual family income of the applicant must be INR 1.5 lakh or less

No income limit for widows or disabled women

No collateral is required and the application fee is completely free under the scheme

Some other government schemes for women entrepreneurs are Bharatiya Mahila Bank commercial loan scheme, Dena Shakti Scheme, Mahila Udyam Scheme, Stree Shakti Scheme

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE): Aimed at providing support to first-generation entrepreneurs, CGTMSE is a joint initiative by Ministry of Micro, Small & Medium Enterprises (MSME), and Small Industries Development Bank of India (SIDBI) to improve flow of institutional credit to micro and small enterprises (MSEs). CGTMSE has been instrumental in providing guarantee cover to collateral and/or third party guarantee free credit facilities extended by eligible Member Lending Institution [MLIs] to MSEs. The credit guarantee scheme was allocated fund of INR 9000 crore during the union budget.

Collateral-free credit (fund and non-fund-based) extended by eligible financial institutions to new and existing MSEs, up to a limit of INR 5 crore, is eligible to be covered by the lending institution.

The maximum extent of guarantee coverage ranges from 85 per cent to 75 per cent for micro enterprises for credit up to INR 5 lakh and above INR 5 lakh & upto INR 50 lakh respectively.

Institutions offering funds:

Scheduled Commercial Banks (SCBs)

Regional Rural Banks (RRBs)

Small Finance Banks (SFBs)

Non-banking Financial Companies (NBFCs)

North Eastern Development Finance Corporation Ltd. (NEDFi)

Pradhan Mantri MUDRA Yojna (PMMY):  Under the MUDRA Yojana (PMMY), launched by Prime Minister Narendra Modi in 2015, the aim was to provide loans up to INR 10 lakh to the non-corporate, non-farm small/micro enterprises. MUDRA stands for Micro Units Development & Refinance Agency Ltd. These loans are given by Commercial Banks, RRBs, Small Finance Banks, MFIs and NBFCs.

To signify the growth/development and funding needs of the beneficiary micro unit/entrepreneur, three stages have been classified under the MUDRA scheme namely ‘SISHU’, ‘KISHOR’, and ‘TARUN’.

Under ‘SHISHU’ the loan coverage is up to INR 5,000, above INR 50,000 and up to INR 5 lakh under ‘KISHOR’, and above INR 5 lakh and up to INR 10 lakh are covered under ‘TARUN’.

Applicants are required to fill out a MUDRA loan application form along with passport size pictures, valid identity proof, address proof, business proof, bank statements, and income tax statements to the bank or NBFC of their choice.

In fiscal year 2022-23, loans to over 6.23 crore beneficiaries were sanctioned under MUDRA scheme

Credit Linked Capital Subsidy Scheme (CLCSS)

Aimed towards the technological advancement of MSEs, including tiny, khadi, village and coir industrial units located in the rural and semi-urban areas, the scheme provides an upfront capital subsidy of 15 per cent (on institutional finance of up to Rs 1 crore availed by them) in the specified 51 sub-sectors/products approved.

The scheme is available for enterprises which have invested in machinery by availing a term loan from the approved list of financial institutions. An extra 10 per cent subsidy is for borrowers from the SC/ST category.

Eligibility for CLCSS loan:

A valid Udyog Aadhar Number (UAN) and entry of the MSE into the MSME Data Bank is mandatory for availing the subsidy under CLCSS component

New and existing enterprises can avail subsidy under this scheme

Industries upgrading from small scale to medium scale on account of sanction of additional loans under CLCSS are eligible for assistance

Conclusion

For survival and increased productivity in today’s competitive market, along with new-age technology, micro and small enterprises need ample money. These government schemes (mentioned above) can turn fruitful for businesses and help them yield better results.