The Role of DFIs in Access to Finance of Micro, Small and Medium Enterprises

Presented by N.Ramesh
Dy. Managing Director
EximBank India

MSMEs account for 49.5% of India’s exports and 27% of the country’s economy. They also earn $422 billion for exported merchandise, accounting for 45% of India’s merchandise export share. However, their export growth is stifled due to limited access to trade finance.

Trade finance accounts for nearly 80% of global trade, but this is typically skewed in favor of developed countries and larger firms, owing to the widening trade finance Gap, which widened further by 15% thanks to Covid.

SMEs bear a disproportionate share of the $1.7 trillion trade finance gap, and one-third of SMEs struggle to obtain affordable trade finance and more likely will be denied trade support. This is why lack of finance is cited by SMEs as a “major impediment.”

To address this, the following are MSME measures were introduced by the Govt. of India (GOI) during the pandemic:
• ECLGS – The Emergency Credit Line Guarantee Scheme (ECLGS), expanded in four phases, provided 100% guarantee coverage to Banks / NBFCs to meet additional term loan / WC requirements of MSMEs.
• Regulatory Package – The Reserve Bank of India (RBI), permitted granting moratorium, initially for 3 months, extended later based on the requirement, on payment of all installments / interest payments in respect of term loans and working capital facilities, and accumulating accrued interest into a term loan.
• OTR package – The RBI on August 6, 2020, introduced One Time Restructuring (OTR) resolution framework for the borrowers facing stress on account of COVID-19.
• SCLCSS – Ministry of MSMEs, GOI, launched the Special Credit Linked Capital Subsidy Scheme (SCLCSS) for services sector, providing 25% capital subsidy for procurement of plant and machinery and service equipment.

As the growth engine of SMEs, and to assuage the financing concerns of SMEs, India EXIMBank had several projects in place:
• TA P or Trade AssistanceProgramme, which contributes towards reduction in trade finance gap, and credit enhancement for trade instruments to facilitate cross-border transactions. It currently covers 54 countries across Asia, Africa, and LAC.
• Factoring – this allows SMEs to improve their liquidity and risk situation without the use of traditional trade finance instruments.
• SEED or Ubharte Sitaare Programme(USP), which extends financial services to identified Indian companies with good export potential, unique technology, product, or processes. The programme offers grants and technical assistance.
• Grassroots Initiatives and Development which supports social enterprises, SMEs, NGOs etc., in their globalization efforts, capacity building, product development, diversification and innovation through workshops, seminars, and training programmes.
• Research and Analysis – which includes preparation of reports from a developing country’s perspective, assessing the export opportunities, and providing policy inputs for SME development. These are openly available in public domain for enterprises to access and benefit.

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