Budget 2020: Govt says scheme to provide subordinate debt to MSME entrepreneurs to be introduced

The government on Saturday said a scheme will be introduced to provide subordinate debt to MSME entrepreneurs.

The government has also asked the Reserve Bank to extend the Debt Restructuring window for micro, small and medium enterprises by a year to March 31, 2021, in measures aimed at imparting a thrust to the MSME sector, Finance Minister Nirmala Sitharaman said while presenting the Budget for 2020-21.

“An app-based invoice financing loans product will be launched. This will obviate the problem of delayed payments and consequential cash flow mismatches for the MSMEs”.

She said necessary amendments will be made to the Factor Regulation Act 2011 to enable non banking financial companies (NBFCs) to extend invoice financing to the MSMEs through TReDS thereby enhancing the economic and financial sustainability.

“Working capital credit remains a major issue for MSMEs. It is proposed to introduce a scheme to provide subordinate debt for entrepreneurs of MSMEs. This subordinate debt to be provided by banks would count as quasi equity and would be fully guaranteed through the Credit Guarantee Trust for the Medium and Small Entrepreneurs,” Sitharaman observed.

TReDS is an institutional mechanism to facilitate the trade receivable financing of micro, small and medium enterprises (MSMEs) from corporate buyers through multiple financiers.

Highlighting that more than five lakh MSMEs have permitted from restructuring of debt permitted by RBI in the last year, she said the restructuring window was to end on March 31, 2020 but the government has asked RBI to consider extending this window till March 31, 2021.

Leave a Reply

Your email address will not be published. Required fields are marked *