In a significant step to strengthen credit access for Micro, Small and Medium Enterprises (MSMEs), Finance Minister Nirmala Sitharaman announced some major initiatives in the Union Budget 2024 presented today. One of the highlight measures was increasing the limit of the Mudra loan scheme, which provides affordable credit to small business owners and entrepreneurs, from Rs. 10 lakh to Rs. 20 lakh.
Another important reform introduced was establishing a new methodology for credit assessment of MSMEs. Public sector banks will now develop their internal capabilities to evaluate the creditworthiness of MSMEs instead of relying on outside agencies. They will also take a lead role in creating a new assessment model based on digital footprints of MSMEs in the economy. This is expected to make financing more accessible for smaller units which may not have formal accounting systems.
A key concern restricting bank lending to MSMEs has been the lack of collateral. To address this, the Budget proposed launching a credit guarantee scheme enabling term loans for machinery and equipment purchase without collateral. An independently funded self-reliant guarantee fund will cover loan amounts up to Rs. 100 crore, with borrowers paying nominal guarantee and annual fees on reducing balances.
By easing access to formal credit, the government aims to support the growth and job creation ability of MSMEs. If implemented efficiently, these measures can play a major role in boosting entrepreneurship across India. It remains to be seen how quickly they translate into more affordable credit reaching the target segment of smaller businesses.
