Steps Being Taken for Increasing Financing to Micro, Small And Medium Enterprises (Msmes)

Debt Financing:

1)     Loans to Medium Enterprises are being brought under Priority Sector Lending.

2)     A separate sub-limit of 7.5% in Priority Sector Lending is being created for the Micro Enterprises.

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3)     RBI has received 72 application for setting up Small Banks.  As per license conditions, the small finance banks are required to extend 75% of Adjusted Net Bank Credit to Priority Sector and 50% of loan portfolio to be upto Rs. 25 lakhs.  Therefore, once set up, the Small Finance Banks would augment supply of credit to small business units, micro and small industries etc. through high technology & low cost operations.

Equity Financing:

1)       “Tax pass-through” status for equity funds has been rationalized for supporting the venture capital eco-system.

2)     A Fund of Funds has been set up in SIDBI to act as a catalyst to attract Private Capital by way of providing equity, quasi equity and other risk capital for start up companies.

Receivable Financing:

1)     A significant part of working capital requirement of an MSME arises due to long receivables realization cycles. To implement corrective and supportive policies for the sector, Trade Receivables Discounting System (TReDs), an electronic platform for facilitating financing of trade receivables from corporate and other buyers through multiple financiers, is being set up. This platform will deal with both receivables factoring and reverse factoring so that higher transaction volumes come into the system and facilitate better pricing.

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