Micro, Small and Medium Enterprise in India: An Overview

Micro, Small and Medium Enterprise in India: Jaiib Paper 1 (Module B) Unit 12

Dear bankers,

As we all know that  is Micro, Small and Medium Enterprise in India for JAIIB Exam. JAIIB exam conducted twice in a year. So, here we are providing the Micro, Small and Medium Enterprise in India (Unit-12),FUNCTIONS OF BANKS (Module B), Principle & Practice of Banking JAIIB Paper-1.

♦Micro, Small and Medium Enterprise in India

  • The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, governs the coverage and investment ceiling of MSMEs in India.

According to the Act, there are two categories of MSMEs in the country –

  • Manufacturing: Manufacturing Enterprises-he enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the industries (Development and regulation) Act, 1951) or employing plant and machinery in the process of value addition to the final product having a distinct name or character or use. The Manufacturing Enterprise are defined in terms of investment in Plant & Machinery.
  • Service Enterprises:-The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment.. The limit for investment in plant and machinery / equipment for manufacturing / service enterprises, as notified,vide S.O. 1642(E) dtd.29-09-2006 are as under

Manufacturing Sector

    Enterprises  Investment in plant & machinery
    Micro Enterprises  Does not exceed twenty five lakh rupees
    Small Enterprises  More than twenty five lakh rupees but does not exceed five crore rupees
    Medium Enterprises  More than five crore rupees but does not exceed ten  crore rupees

Service Sector

    Enterprises  Investment in equipments
    Micro Enterprises  Does not exceed ten lakh rupees:
    Small Enterprises  More than  ten lakh rupees but does not exceed two crore rupees
    Medium Enterprises  More than two crore rupees but does not exceed five core rupees

♦Performance & Credit Rating Scheme

  • This scheme seeks to establish independent, trusted third party opinion on capabilities and credit-worthiness of MSEs, and makes credit available at attractive interest rates and will ensure better productivity. Under this scheme (as per the turnover of the MSE) a percent of Rating Agency charges are reimbursed by Ministry of SSI.

Scheme Benefits & Highlights

  • The fee to be paid to the rating agencies shall be based on the turnover of the Small-Scale Units which has been categorized into three slabs. The slabs of the Turnover and the Share of Ministry of SSI towards the fee charged by the Rating Agency is as follow:

Turnover of MSE Re-imbursement of fee through NSIC:

  • Up to Rs. 50 lakh – 75% of the fee or INR25,000 (whichever is less)
  • Above Rs. 50 to 200 lakh – 75% of the fee or INR30,000 (whichever is less)
  • More than Rs. 200 lakh – 75% of the fee or INR40,000 (whichever is less)

♦Credit Guarantee

Any collateral / third party guarantee free credit facility (both fund as well as non fund based) extended by eligible institutions,   to new as well as existing Micro and Small Enterprise, including Service Enterprises, with a maximum credit cap of of  200 lakh (Rupees Two Hundred lakh only) are eligible to be covered. Recently, guarantee coverage made eligible to select NBFCs and Small Finance banks.

The guarantee cover available under the scheme is to the extent of 50%/ 75% / 80% & 85% of the sanctioned amount of the credit facility. The extent of guarantee cover is 85% for micro enterprises for credit up to  5 lakh. The extent of guarantee cover is 50% of the sanctioned amount of the credit facility for credit from  10 lakh to  100 lakh per MSE borrower for retail trade activity.

The extent of guarantee cover is 80%(i) Micro and Small Enterprises operated and/or owned by women; and (ii) all credits/loans in the North East Region (NER) for credit facilities upto  50 lakh. In case of default, Trust settles the claim up to 75% of the amount in default of the credit facility extended by the lending institution for credit facilities upto  200 lakh.

Category Maximum extent of Guarantee where credit facility is
Upto  5 lakh Above  5 lakh upto  50 lakh Above  50 lakh upto  200 lakh
Micro Enterprises 85% of the amount in default subject to a maximum of  4.25 lakh 75% of the amount in default subject to a maximum of  37.50 lakh 75% of the amount in default subject to a maximum of  150 lakh
Women entrepreneurs/ Units located in North East Region (incl. Sikkim) (other than credit facility upto  5 lakh to micro enterprises)

 

80% of the amount in default subject to a maximum of  40 lakh
All other category of borrowers 75% of the amount in default subject to a maximum of  37.50 lakh
Activity From  10 lakh upto  100 lakh
MSE Retail Trade 50% of the amount in default subject to a maximum of  50 lakh

♦What is the CGTMSE?

  • The whole idea behind this trust is to provide financial assistance to these industries without any third party guarantee/ or collateral. These schemes provide the assurance to the lenders that in case of default by them a guarantee cover will be provided by trust in the ratio of 50/75/80/85 percent of the amount so given. The objectives of this fund are:
  • To check the financial viability of the project of these companies
  • To give term loans and composite credit schemes
  • As per this scheme, a loan of up to Rs. 200 lakhs can be given to MSMEs. A special preference is given to the women entrepreneurs who are eligible for this scheme. Loans are also provided to borrowers who are located in the Northeastern States of India including Sikkim and Jammu and Kashmir.

What are the fees charged by the CGTMSE?

The fees charged by the trust fund is a percentage of 1% p.a of the amount so sanctioned:

  • 0.75% – for credit of up to Rs. 5 Lakhs
  • 0.85% for credit above Rs. 5 Lakhs but up to Rs. 100 Lakh

The credit guarantee available under this scheme is 75/80% of the amount so given to a maximum cap of Rs. 62.5 Lakh / 65 Lakh for a credit facility of up to Rs. 50 Lakhs. The percentage guarantee is 85% for microenterprises for a sum of up to Rs. 5 lakhs. The percentage of guarantee is 50% of the amount so sanctioned for a credit of above Rs. 50 Lakhs with a maximum limit of Rs. 100 Lakhs. The tenure of the guarantee is a block of 5 years.

♦Time Norms for Disposal of Applications

  • With the switch over to the simple turnover method for all advance on the SME segment up to Rs. 5crs, the time for processing of the applications and sanction has to be curtailed as under (from the date of submission of complete paper by the borrower):
Limits Time Limit not exceeding
Up to and including Rs25000/- 4 Business Days
Over Rs 25000 and Up to Rs 10lakhs 8 Business Days
Over Rs 10 lakhs up to 5 crs. 12 Business Days
Over 5 Crs. 20 Business Days

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