Micro loans: Small businesses in southern India make the most of credit scheme

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Mumbai: The emergency credit line guarantee scheme (ECGLS) has helped in the credit growth for small businesses, aiding an index of growth in loans for the crucial sector ending a notch higher at the end of the September quarter.

However, because of the special asset quality recognition dispensations like the moratoriums, recast and then the Supreme Court decided standstill, the ‘strength index’ for the MSMEs (micro, small and medium enterprises) will get clearer in the next few months, Transunion CIBIL and Sidbi, who prepare the index, said.

The latest MSME Credit Health Index indicates that credit growth has accelerated, as the overall growth index inched up to 114 points, which is a three-point increase from 111 in June. The overall Strength Index also improved to 89 from 83 over the same period, the index prepared by the credit information company and the state-run financier said.

“The true direction of the Strength Index will become clearer over the next few months as regulatory and legal guidelines with respect to NPA (non-performing assets) restructuring emerge,” it said.

The index is prepared in association with the Ministry of Statistics and Programme Implementation (MoSPI), since November 2020 and is built using credit data submitted by lending institutions to Transunion Cibil.

Cibil’s managing director and chief executive Rajesh Kumar said the ECLGS infusion has been a timely policy intervention that is proving it benefits in both the short as well as long term.

“As MSMEs now have access to much needed financial support, they are able to scale their businesses which had experienced catastrophic lows post-pandemic and resulting lockdowns,” he said.

Private banks and public sector banks (PSB) have seen a surge in growth in the June and September quarters, while non-bank financial companies (NBFCs) show a muted growth, the report said.

Absolute credit disbursements data showed that the PSBs have emerged as the leading MSME lender group in the period starting June 2020 to September 2020, while disbursals by private banks, which were also impacted during the lockdown, are back to pre-COVID-19 levels.

Tamil Nadu, Maharashtra and Gujarat have shown higher growth momentum during the quarter while Uttar Pradesh has also sustained its growth in the last two quarters.

Among the top 10 states with respect to exposure, the southern states have shown more growth than the northern states cumulatively with respect to micro loans, it said.

West Bengal and Telangana, which are also in the top 10, have stable Strength Indices along with steadily increasing Growth Indices, it added.