Ease of Doing Business for MSMEs: The Parliamentary standing committee on finance has suggested developing the Udyam portal into a one-stop central data repository for the MSME sector by linking it with other databases such as CIBIL data, utility bills data etc. The portal is currently already linked with the Government e-Marketplace (GeM), Income Tax, GST and Trade Receivables Discounting System (TReDS) portals. However, “the committee still feel that whatever data is there with regard to MSME sector, they exist in a fragmented manner and there is no real integration across multiple datasets…Such a database could then be accessed by lenders, after getting the MSME borrower’s consent, to extend timely credit to them,” said a report tabled by the committee in Lok Sabha on strengthening credit flow to the MSME sector.

Minister Nirmala Sitharaman had also announced linking the Udyam portal with e-Shram, National Career Service (NCS) and Atmanirbhar Skilled Employee-Employer Mapping (ASEEM) in the budget to enhance skilling and recruitment for MSMEs.

The committee also pitched for creating a ‘UPI for MSME Lending’ for all MSMEs in the formal sector to access small-ticket working capital loans in a mobile-based, contactless, paperless, and low-cost way. “To enable this digital vision of MSME credit to come to life, the committee believe that information needs to be used to replace physical collateral: this is cash flow lending or flow-based lending,” the report presented on April 8 noted.

While lenders may not be comfortable giving large ticket loans to MSMEs over a five or 10-year period without collateral, unsecured small-ticket loans over a 60 or 90-day period can be profitable for lenders as the transaction cost under the cash flow-based approach can be brought down ‘enough’, the Parliamentary panel said.

For Udyam-registered MSMEs, the panel also recommended a ‘Vyapar’ credit card scheme for MSMEs under SIDBI akin to the Kisan Credit Card (KCC) scheme of the National Bank for Agriculture and Rural Development (NABARD) to bring crores of MSMEs into the formal financial system including street vendors and kirana stores.

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The credit card can provide short-term working capital loans at low-interest rates and can be further extended to provide collateral-free loans like the Rs 1 lakh collateral-free facility available to KCC holders, the panel said.

The need for formalising the credit ecosystem for MSMEs has assumed significance as less than 40 per cent of 6.34 crore MSMEs, as per government data, borrow from the formal financial system, according to the report. Moreover, the lack of updated data on total MSMEs in the country and their profile has impacted the sector’s growth.  

The last MSME survey was conducted by National Sample Survey Office (NSSO), Ministry of Statistics and Programme Implementation six years ago while the government had revised the MSME definition in 2020 to enlarge the scope of the sector by bringing businesses with turnover up to Rs 250 crore under the MSME ambit. 

“The committee strongly recommend that survey/census of MSMEs in line with the changed definition, be conducted at the earliest so as to estimate the actual number of MSMEs in the country along with realistic assessments of their credit requirements. This survey should be conducted regularly and, in addition, SIDBI can develop a fact-based MSME Annual Financing Report to guide policies and investments,” the panel suggested.