Government extends MSME loan guarantee program by one month

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India has extended the government-guaranteed small business bailout to allow more borrowers to take advantage of such loans during the holiday season, a seasonally strong time for businesses.

The emergency line of credit guarantee program has been extended until November 30 or until the full amount of Rs 3 lakh crore is sanctioned, whichever comes first, to these companies under the program, the finance ministry said in a statement.

So far, 2.03 lakh crore has been sanctioned by banks under the 60.67 lakh borrower program, the statement said. Of this amount, Rs 1.48 lakh crore was paid to borrowers.

The program, announced as part of the government’s Aatmanirbhar Bharat program, aimed to provide emergency credit to micro, small and medium-sized businesses and self-employed workers affected by the Covid-19 pandemic. This led to an increase in small business credit of 13.8% between March and September 2020, according to credit data published by the Reserve Bank of India. Borrowers with outstanding credit of up to Rs 50 crore, as of February 29, 2020, and annual turnover of up to Rs 250 crore are eligible for the program. Interest rates are capped at 9.25% for banks and 14% for non-bank lenders, while loan terms are four years, including a one-year moratorium on repayment of the principle.

The loan guarantee program has been expanded in light of the opening up of various sectors of the economy and the expected increase in demand during the current holiday season, the statement said.

A study by the National Institute of Banking Management found that the program helped small businesses “tremendously” by providing timely financial support to restart operations, pay salaries, and settle supplier contributions. However, the study also found that a large number of grantees complained that the size of the loans offered was small, and some missed the facility due to the extensive documentation involved.

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