Small entrepreneurs may soon get access to credit at a lower interest rates, as the Reserve Bank of India has allowed Small Industries Development Bank of India (SIDBI) to go for external commercial borrowing (ECB) to fund micro, small and medium enterprises (MSMEs).
RBI has permitted SIDBI to raise up to $500 million (nearly R2,700 crore) a year.However, small entrepreneurs are still wary, as their loan-sizes are relatively small. Banks charge 13-16% interest on loans to small enterprises.
The Federation of Indian Small and Medium Enterprises (FISME) said that segmentation along the lines of entrepreneurs’ requirements is a good idea.“It sounds good, but since the ticket size of MSME loans is small, the need is to form a pool of certain number of borrowers in a particular category, so that the size gets bigger,” said FISME president VK Agrawal.
SIDBI said it would deliberate on various modalities and tap the market at an opportune time, when competitive rates are available.
“RBI allowing SIDBI to access the ECB market towards onward-lending to the MSME sector has opened up a new avenue for resource raising for the bank, and will benefit MSMEs,” said deputy managing director, SIDBI, NK Maini.