MSME credit line guarantee scheme: Now, individual entrepreneurs can also apply for loansMon Aug 03 2020 / By: Rashmi
In his speech of making India 'Atmanirbhar' (self-dependant), Prime Minister announced a boost of Rs. 20 Lakh Crore to the Indian Economy. Out of this Rs. 20 Lakh Crore, around Rs 1.37 lakh crore was sanctioned to MSMEs, under Emergency Credit Line Guarantee Scheme (ECLGS). But, to give relief to a broader set of people, Govt. of India has now announced that this ECLGS scheme will now also cover individual entrepreneurs.
Earlier, this used to cover only loans availed for Micro, Small, and Medium Enterprises, but with this new announcement, personal loans given for business purposes will also be counted under the ECLGS scheme.
A number of MSME organizations and market chambers suggested to the finance ministry that they should broaden their eligibility criteria to include individual entrepreneurs under this scheme. A great chunk of loan borrowers (around 80-90 percent) who had taken loans from NBFCs for their business tools or vehicles were ineligible for the Emergency Credit Line Guarantee Scheme yet.
With this change, individual business persons like cab or truck drivers, shop owners, lawyers, doctors, engineers, etc. will also be eligible for the loan.
However, the catch is that first-time loan borrowers can not get new loans under this scheme. People who have already taken loans from banks to Non-Banking Financial Companies can stretch their loans.
What Are The Benefits?
Talking about the scope of this new development, Debasish Panda, Secretary of Department of Financial Services said to the media, "A total of around Rs 1.37 lakh crore has been sanctioned under the scheme by member lending institutions to around 40 lakh accounts, of which around Rs 87,000 crore has been disbursed. The changes in the ECLGS scheme are likely to make an additional Rs 1 lakh crore eligible."
Companies that have an annual turnover of up to Rs 250 crore but have an outstanding loan of the amount up to Rs 50 crore can now avail an additional loan of up to 20%. This implies that individual entrepreneurs will now be eligible to get around Rs 10 crore as additional financing, instead of just Rs 5 crore.
To make sure that lenders don't charge too much from the borrowers, the central government has capped the interest rates. For banks and financial institutions, loans under the ECLGS scheme can only charge an interest rate of 9.25 percent per annum, while for Non-Banking Financial Companies, this cap is up to 14 percent interest rate per annum
According to market insiders, if executed before the prescribed date, this scheme can boost the economy enough that it can gain a stable momentum afterward.
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