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Getting a loan from a bank or a non-banking finance company may no longer be an uphill task for micro enterprises.
Reason: The Small Industries Development Bank of India (SIDBI) is planning to give liquidity support to financial intermediaries to encourage them to give loans to micro enterprises.
Towards this end, SIDBI has tied up with German development bank KfW for a line of credit aggregating €100 million (about Rs 780 crore).
Micro enterprises typically have loan requirements ranging from Rs 50,000 to Rs 10 lakh.
Reason: The Small Industries Development Bank of India (SIDBI) is planning to give liquidity support to financial intermediaries to encourage them to give loans to micro enterprises.
Towards this end, SIDBI has tied up with German development bank KfW for a line of credit aggregating €100 million (about Rs 780 crore).
Micro enterprises typically have loan requirements ranging from Rs 50,000 to Rs 10 lakh.
‘Missing middle’
According to SIDBI Chairman and Managing Director Sushil Muhnot, the KfW line of credit is ‘for financing the missing middle’.
“Loans up to Rs 50,000 are covered under microfinance. Banks normally do not lend below Rs 10 lakh because it does not work out to be economical for them. So, for loans between Rs 50,000 and up to Rs 10 lakh there is nobody (lender) as such,” he said.
Given that liquidity support will be available from SIDBI to commercial banks, regional rural banks, urban co-operative banks and non-banking finance companies, it is expected that they will step up lending to micro enterprises.
Last week, SIDBI signed an agreement with KfW for the nine-year credit line at a fixed rate of 1.67 per cent.
After adding the 1.20 per cent charge that SIDBI has to pay towards government guarantee on the borrowing and the forward cover on the loan, the overall cost of borrowing comes to around 8.50 per cent.
Muhnot said “We will draw the funds over a period of time. We will draw more when the forward cover rates come down so that we get the benefit of lower cost. We have kept the funding line in place so that as and when the rupee stabilises we get a better rate.”
SIDBI will make the funds available to banks and non-banking financial companies at about 10.5 per cent. These financial intermediaries, in turn, can lend to micro enterprises at normal market rates.
“Loans up to Rs 50,000 are covered under microfinance. Banks normally do not lend below Rs 10 lakh because it does not work out to be economical for them. So, for loans between Rs 50,000 and up to Rs 10 lakh there is nobody (lender) as such,” he said.
Given that liquidity support will be available from SIDBI to commercial banks, regional rural banks, urban co-operative banks and non-banking finance companies, it is expected that they will step up lending to micro enterprises.
Last week, SIDBI signed an agreement with KfW for the nine-year credit line at a fixed rate of 1.67 per cent.
After adding the 1.20 per cent charge that SIDBI has to pay towards government guarantee on the borrowing and the forward cover on the loan, the overall cost of borrowing comes to around 8.50 per cent.
Muhnot said “We will draw the funds over a period of time. We will draw more when the forward cover rates come down so that we get the benefit of lower cost. We have kept the funding line in place so that as and when the rupee stabilises we get a better rate.”
SIDBI will make the funds available to banks and non-banking financial companies at about 10.5 per cent. These financial intermediaries, in turn, can lend to micro enterprises at normal market rates.
Makes biz sense
The SIDBI chief emphasised that for banks it makes eminent commercial sense to finance the micro, small and medium enterprise (MSME) sector.
In the backdrop of the regulatory pre-emption in the form of investment in government securities and deployment of cash with the Reserve Bank of India; mandatory lending to the agriculture segment (at below base rate); the rush to push home loans (almost at the base rate), and large corporates playing banks against each other to get loans at cheaper rates, lending to MSME will fetch better returns.
Muhnot observed that as all banks have public shareholding, they are under the gaze of analysts, who want to know about margins and growth outlook.
“So, if you have to show growth then you have to seriously look at the MSME sector,” he said.
ramkumar.k@thehindu.co.in
satyanaraynan.iyer@thehindu.co.in
Source: thehindubusinessline
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