Self-employment is one way of attacking poverty and solving the problems of unemployment by the poor people. Having a great business idea is not sufficient; to implement that idea one must need capital to set up business and to execute the plan. Every entrepreneur doesn’t have enough amounts to invest. For these kind of people there is a credit facility called Micro-Credit. The Scheme of Micro-Credit is an effective instrument to provide an opportunity of self-employment and making them credit worthy.
According to the Budget-2009 to facilitate flow of credit at reasonable rates, Rs.4, 000 crore provided as special fund out of RIDF to Small Industries Development Bank of India (SIDBI). This will incentives Banks and State Finance Corporations to lend MSEs by refinancing 50 per cent of incremental lending to MSEs during the current financial year.
In India the major sources of finance to MSEs is through the public sector banks (58%) and the other sources include emerging source (16%) and Other Banks (26%).
Incremental Credits from Public Sector Banks include Rs.38,809 crore, the Pvt./Foreign Banks and SIDBI/SFCs include Rs.17,103 crore and Emerging Sources (VC-PE, ECB, Factoring, etc.) include Rs.10,883 crore. There by the total requirement of micro-credit in the country has been assessed at Rs.66,795 crore.
Apart from providing finance to develop the MSEs, the government also taking some supportive measures like Credit support and Fiscal support. Credit support includes the measures like insistence on collateral security, high rate of interest, accesses to institutional finance, 10% of total bank credit for MSEs, targets & regulatory mechanism, credit guarantee schemes and non-bank finance through factoring etc.,
Fiscal support includes not too many direct sops, excise duty exempt upto $ 600,000 p.a., no service tax upto $ 20,000 of turnover, no IT surcharge for income upto $ 250,000, tax concessions by state governments also and states exempt / lessen rates for MSMEs etc.,
However, the SMEs still face serious credit crunch and variety of regulations from Center, states, and local governments. Still the private sector banks and many financial institutions are neglecting this sector.
Suggested Reading:
Contribution Of MSEs In GDP Of India
Contribution Of MSEs To Employment In India
Contribution of MSEs to the Exports in India
SMBs in India Becoming More Concerned About IT Security
Development measures for MSEs in India
MSMEs-Being Major Contributors, Struggling to Survive and Sustain