SPV suggested for crowd sourcing of MSME investments

Further, for convergence of policies and creating a promotional ecosystem, it has recommended the setting up of a National Council for MSMEs at the apex level under the chairmanship of the prime minister with the ministers for MSME, commerce and industry, textiles, food processing, agriculture, rural development, railways and surface transport as members. The states should have a similar state council for MSMEs, for better co-ordination of developmental initiatives.

The committee has made wide ranging recommendations for expanding the role of the Small Industries Development Bank of India (SIDBI). The government should deploy the PSL shortfall to SIDBI on the lines of RIDF fund of Nabard, for lending to state governments as soft loans for infrastructural and cluster development. SIDBI should deepen credit markets for MSMEs in underserved districts and regions by handholding private lenders such as non-banking finance companies (NBFCs) and micro finance institutions (MFIs). 

Further, they must develop additional instruments for debt and equity which would help crystallise new sources of funding for MSMEs and MSME lenders such as first loss guarantees, pass through certificates (PTCs), etc. SIDBI should gradually take on the role of a market maker for SME debt on select platforms, the committee suggested.

SIDBI, as a nodal agency, should ideally play the role of a facilitator to create platforms wherein various venture capital funds can participate and in turn create multiplier effect for providing equity support to MSMEs. A government sponsored fund of funds (FoF) to support VC/PE firms investing in the MSME sector should be set up to encourage them to invest in the MSME segment.

The committee suggested the creation of a Distressed Asset Fund, with a corpus of Rs5,000 crore, structured to assist units in clusters where a change in the external environment, eg, a ban on plastics or ‘dumping’ has led to a large number of MSMEs becoming NPA. This fund could then operate on the lines of the Textile Upgradation Fund Scheme (TUFS) which has been in existence over many years. This would be of significant size in order to make equity investments that help unlock debt or help revive sick units.

Since entities providing credit guarantees are outside the purview of regulation, the committee has recommended that all credit guarantee schemes be subject to the regulation and supervision of RBI. 

Also, it was suggested that government should take active efforts to provide insurance cover to MSME employees on the lines of PMSBY and PMJJBY schemes. Workers at urban and rural formalised MSEs need to be specifically covered under Ayushman Bharat - PMJAY.

The committee observed that MUDRA loans would require enhancement of in-house (or outsourced) capabilities, including underwriting, risk management, fund raising based on its own AAA rating and sharper focus on emerging trends in the market. Hence, a reimagining of MUDRA is necessary including assessing the rationale for continuing it as a subsidiary of SIDBI. The committee further recommended that SHG enterprises may be brought under the purview of MUDRA’s guarantee programme.

The committee felt that the PSBLoansIn59Minutes portal, which now caters only to existing entrepreneurs, should also cater to new entrepreneurs, who may not necessarily have such information, including those applying under PMMY loan and Standup India. A timeline of 7 – 10 days needs to be fixed for disposal of applications, which have received in-principle approval and threshold of loan should be enhanced up to Rs5 crore. Further, the portal should be linked with land records, CERSAI and CGTMSE.

And with Account Aggregators (AA) getting operationalised, lenders will have access to borrowers’ transactions at a single point and, accordingly, the committee has suggested that banks should move towards cash flow-based lending.

The Committee recommended introduction of a concept of adjusted priority sector lending to enable banks to specialise in lending to a specific sector. This will help lenders build expertise in lending to the specific sector and borrowers will benefit from customised financial products and services.

Considering price rise, the committee has recommended an upward revision in the collateral free loan limit from Rs10 lakh to Rs20 lakh. The same should also apply to loans sanctioned under PMMY and to SHG based enterprises, it suggested.

In order to provide loan portability in a seamless manner to MSMEs, the Committee recommends that RBI should come out with measures on portability of MSME loans with a lock in period of one year.

With a view to reduce the credit gap, the committee suggested a new intermediary, ie, Loan Service Providers (LSPs) – who will be an agent of the borrowers. Further, the committee felt that the RBI should facilitate the creation of a self-regulatory organization, on the lines of AMFI and RIAs, to organise and provide light touch regulation for this category of players. The LSPs will offer individualized advice and should act in borrowers’ best interests, respecting fiduciary duties of disclosure, loyalty and prudence.

The committee also suggested creation of a Digital Public Infrastructure that will have the potential to reduce loan operating costs significantly. Furthermore, it will address information asymmetry that improves credit access and overall quality in the lending space.