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Banks advised to push cash flow-based lending to MSMEs
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SME Times News Bureau | 21 Sep, 2016
In a bid to increase the institutional credit flow to micro, small and medium enterprises (MSMEs), banks can explore cash flow-based financing, as its funding to the sector is "not as per expectation", a senior government official has said.
"Overall credit growth to the MSME sector is not as per expectation. Banks are still the cheapest source of credit for MSMEs, and alternatives such as NBFCs (Non-Banking Financial Companies) only add to the cost of the credit," said S.N. Tripathi, Additional Secretary and Development Commissioner, Ministry of Micro, Small and Medium Enterprises, in Kolkata on Tuesday.
"Banks can evaluate cash flow-based lending to the sector, which emphasises more on the entrepreneurship skills, in contrast to asset-based lending. It has been observed that Indian banks prefer to give asset-based loan and not proposal-based funding to new businesses," he said on the sidelines of an event organised by the Indian Chamber of Commerce.
According to a recent data of the Reserve Bank of India (RBI), there has been a 3.3 per cent decline on the outstanding credit flow to the micro and small enterprises, and 8.7 per cent to medium enterprises over the year-ago period.
Further, as per the RBI's priority sector lending guidelines, banks are required to attain a target of 7.5 per cent of the total credit to micro enterprises (investment in plants and machinery up to Rs 25 lakh) by March 2017.
"The central government is all set to introduce a financial support scheme that facilitates 'Zero Defect Zero Effect' manufacturing in the MSME sector," Tripathi said.
The government has allocated Rs 491 crore as financial support to the scheme, which will focus on increasing productivity, reducing wastage, expanding markets and developing new products and processes, he added.
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cash-flow based landing
Anil Kansara | Wed Sep 28 13:46:14 2016
Banks having burn their fingers with huge NPAs are seldom prepared to help SMEs with cash - flow based funding. SMEs in India inspite of the potential to grow at much faster space are denied the opportunity due to rigidness of its system.
govt. push for sanction of loans to Msmedi entrepreneur.
Charles Thomas Rieley | Wed Sep 28 10:51:09 2016
The Modi Govt. is going all out to ensure that banks release loans to trained personnel of Msmedi and KVIC streams as preferential recipients of this facility. This is irrespective of age. That's a boon to senior citizens and retired pensioners. It is an appreciative step by the Goverent at the Centre. A word of Thanks .
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