MSMEs poised for growth with key boosts from Union Budget 2024, say experts

Micro, small, and medium enterprises (MSMEs) are breathing a sigh of relief following Finance Minister Nirmala Sitharaman's budget announcement. According to experts, the proposed budget is expected to provide a significant boost to these vital businesses. Key announcements that caught attention include the extended credit guarantee support, where a self-financing guarantee fund will provide coverage up to Rs 100 crore per applicant. Borrowers will pay an upfront and annual guarantee fee based on the reducing loan balance. The Mudra loan limit has been increased to Rs 20 lakh from the current Rs 10 lakh for entrepreneurs who have successfully repaid previous loans under the ‘Tarun’ category. Additionally, the turnover threshold for mandatory onboarding on the TReDS platform has been reduced from Rs 500 crore to Rs 250 crore.

Speaking to Business Today, Vinod Kumar, President of India SME Forum, commended the government's responsiveness to the challenges highlighted by his forum for the MSME sector. He believes the budget introduces a robust transformational package that includes financing, regulatory changes, and technological support.

“The introduction of a credit guarantee scheme for manufacturing MSMEs looking to upgrade their technology and operations, facilitating term loans for machinery purchases without collateral, enhancing Mudra loan limits, along with provisions for continued credit support during stress periods guaranteed by a government fund without the categorization as NPA, demonstrates a holistic approach to enhancing financial support for the MSME sector,” Kumar said.

“The Union Budget 2024 presents an ambitious framework aimed at revitalizing India's economic landscape, particularly for MSMEs, startups, artificial intelligence, and job creation. This budget has the potential to catalyze significant growth and innovation,” said Mukul Goyal, co-founder of Stratefix Consulting.

For TReDS, or Trade Receivables Discounting System, which is an online platform designed for the factoring of trade receivables for MSME sellers, Kalyan Basu, MD & CEO of Vayana (IFSC) Pvt Ltd, noted that the proposal to lower the turnover threshold for mandatory onboarding on TReDS from Rs 500 crore to Rs 250 crore is a significant step towards enhancing liquidity for MSMEs in India. This change is expected to bring approximately 22 Central Public Sector Enterprises (CPSEs) and around 7,000 additional companies onto the platform, thereby broadening the scope of suppliers to include medium enterprises.

“TReDS acts as a financial lifeline for MSMEs by converting trade receivables into immediate cash, easing cash flow challenges. This initiative supports MSME growth, strengthens supply chain relationships, and enables larger buyers to negotiate better terms. The inclusion of medium enterprises in TReDS promotes financial accessibility, reducing financing costs and improving cash flow management, fostering a healthier financial environment,” Basu added.

Sundeep Mohindru, Promoter and Director of M1xchange, an RBI-registered TReDS platform, highlighted that banks and NBFCs will now be more drawn to TReDS, offering MSMEs collateral-free working capital at competitive rates. MSMEs already registered on these platforms can now get more invoices discounted as a result.

“The special attention given to MSMEs, including the credit guarantee scheme and term loans for machinery, is a much-needed boost for the manufacturing sector. These measures will provide the financial support necessary for MSMEs to modernize their operations, adopt new technologies, and enhance their competitiveness,” said Govind Sankaranarayanan, Co-Founder and COO at Ecofy, one of India's first exclusive green-only NBFCs.

Another important announcement was the expansion of SIDBI branches, where the finance minister said that SIDBI will open new branches to serve all major MSME clusters within three years, with 24 new branches opening this year, expanding service coverage to 168 out of 245 major clusters. Basu remarked that this initiative aims to provide better access to financial services and will create a more inclusive financial ecosystem where MSMEs can easily secure funding for their operations, including term loans for purchasing machinery and equipment without the burden of collateral or third-party guarantees. This expansion will help bridge the gap between MSMEs and financial institutions, ensuring that entrepreneurs receive the necessary support and guidance to thrive.

In addition to announcing the establishment of e-commerce export hubs, the new credit assessment models for PSB credit based on digital footprints rather than traditional metrics like turnover were also praised.

“One of the most forward-thinking aspects presented in the Budget with regard to MSMEs is the new assessment model for MSME credit. By enabling the development of capabilities to assess MSMEs for credit, rather than relying on external assessments, the government is paving the way for a more accurate and inclusive credit assessment process,” said Hardika Shah, Founder & CEO of Kinara Capital.

However, Sanjay Sharma, MD & CEO of Aye Finance, a fintech player that aims to empower the economic transformation of micro enterprises, expressed discontent. He noted that micro-scale enterprises, which generate the bulk of non-agri jobs, have no specific program except for some trickle-down from the Rs 100 crore Credit Guarantee Fund. He suggested that the simplification of credit guarantee schemes for micro loans would have been helpful, but this will need to wait.

Goyal also mentioned that while the expansion of the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is commendable, it could have been further enhanced by introducing specific incentives for eco-friendly technologies, which are crucial for aligning economic growth with sustainability.

Overall, the Union Budget 2024-25 has shown a ray of hope to MSMEs, and stakeholders believe that the measures will help in boosting the sector.