ECLGS: Credit support to majority MSMEs to be short term; ‘unequal’ disbursement may impact scheme

Credit and Finance for MSMEs: Even as the Modi government’s Rs 3 lakh crore Emergency Credit Line Guarantee Scheme (ECLGS) has been able to ease Covid-induced financial problems faced by MSMEs and other businesses, but for the majority of them, the support would help sustain their needs only for up to three months. According to a recent survey involving 1857 respondents from MSMEs, other businesses by the National Credit Guarantee Trustee Company (NCGTC), which provided 100 per cent guarantee coverage under the scheme, 87 per cent respondents said that ECLGS had helped ease their capital crunch. However, a majority 59 per cent added that the support would only last up to three months.

Among micro, small and medium units, only 32 per cent medium said that the credit received would ease their financial problems beyond three months while the even lesser proportions of small and micro units – 23 per cent and 18 per cent respectively believed the money would support them for more than three months. According to the September survey, “Across activity type, marginally fewer manufacturing units (83 per cent) saw liquidity benefits of GECL (Guaranteed Emergency Credit Line) as compared to retail trade (87 per cent) and services (84 per cent).”. This was likely because of the low share of manufacturing activities in the GECL disbursed by banks and NBFCs. This may have broader economic consequences, according to the survey. The funds were most likely to be used by MSMEs, other businesses to restart their operations (51 per cent) or clear supplier dues (51 per cent).

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However, “the unequal distribution of disbursement may defeat the purpose of the ECLGS,” the survey noted. While 72 per cent respondents getting 59 per cent share of the emergency credit belonged to micro units, 9 per cent respondents with 21 per cent shared of the credit disbursed were from small enterprises while only 2 per cent respondents with 6 per cent share of the disbursed amount represented medium units.

Moreover, in terms of disbursed amount, only 1 per cent respondents got over Rs 10 lakh amount which was 16.2 per cent of the 100 per cent disbursed amount. Similarly, 4 per cent respondents secured credit between Rs 5 lakh and Rs 10 lakh – 20.2 per cent of the disbursed amount, 27 per cent got amount between Rs 1 lakh and Rs 5 lakh – 47.9 per cent of the disbursed amount, 18 per cent received credit between Rs 50,000 and Rs 1 lakh – 10.4 per cent of the total amount, and so on. As of October 5, banks have sanctioned Rs 1,87,579 crore loans to 50.7 lakh business out of which 27 lakh MSMEs were disbursed with Rs 1,36,140 crore loans, according to the data from the Finance Ministry.