Under the ongoing Pandemic crisis,and Lockdown each economy of the world are falling apart. Closed shops, production houses, Locked manufacturing unit are very common sight everywhere. Indian economy has too no exception and government is doing all possible effort for the revival.
The government of India have recently influx a 20 Lac Crore proposal to bail out the economy by giving subsidy, and other tax benefits to individual, corporates or MSME sectors. Out of the total budget scheme, 3 Lac Crore was allocated to the MSME sector through Collateral free loan scheme.
What are MSME ??
Micro Small and Medium Enterprises (MSME). This sector of economy comprises of small firms and companies contributes a lot towards the growth of the economy. It is one of the largest employment generation sector that gives working status to many individual. As per a recent study, this sector sector contributes over 28 percent of GDP and more than 40 percent of country's exports, and creating employment to about 11 crore people.
So it's not wrong to say, this sector is the backbone of Indian economy and helps to sustain many big enterprises. These are the companies which are engaged in supply of goods or machinery parts to big companies.
The more they grow, the more other player grow. Since the outbreak of Pandemic, MSME sector struggling a lot, to keep up the momentum going. Also they need to keep working force intact. Due to continous lockdown, many MSMEs, especially smaller ones, have already run out of money to pay staff salaries, rents and other expenses. These firms need funds to meet immediate payment obligations.
Collateral Free Loan Sceme.
The new government scheme seems to be very lucrative as the MSME's are struggling for funds in the wake of COVID-19 crisis.
Under the new initiative of Collateral Free Loan,the government will offer full credit guarantee for the loan amount to banks in the event of these loans turning bad.
basically, a collateral free loan means that you do not have to offer any asset or pledge collateral to borrow against. The loan given to you is unsecured, and the lender doesn't have any asset to fall back upon in case of default.
Through this scheme, the government is targetting to benefit 45 lakh small businesses.
Not everyone is allowed in this scheme. Certain eligibility crietiria were in place to avail the government scheme. There will have a 4-year tenure which gives the small enterprises a reasonable time. The larger impact will be in keeping a check on the growing unemployment rates. With the inflow of cash through these loans scheme at lower interest rates and long term repayments, businesses should be able to make payroll. Thus helps in maintaining the Cash flows and Working Capital.
So with the scheme, the government is trying to woo the small enterprises to sustain for longer period and meet the short term challenges. Though, There will be lot of challenge in the banking front. However, the government is trying to keep intact the backbone of the economy by making them more stronger.
We need to stay stronger and help our economy to grow and get over with the sudden crisis that resulted in huge loss. Hope o get the revival soon.
