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Credit crutch for small businesses

business Updated: Jul 07, 2009 00:45 IST
HT Correspondent
HT Correspondent
Hindustan Times
Credit crutch for small businesses

The micro, small and medium enterprises (MSMEs), arguably the worst hit by the global financial crisis have got a shot in the arm.

The government has proposed to facilitate and ease the flow of credit at reasonable rates for MSMEs by providing a special fund of Rs 4,000 crore.

This fund is expected to incentivise scheduled commercial banks and state finance corporations (SFCs) to refinance 50 per cent of incremental lending to MSEs during the current financial year. The move would also encourage banks to lend to new customers.

“To support this sector, I propose to facilitate the flow of credit at reasonable rates, by providing a special fund out of Rural Infrastructure Development Fund (RIDF) to Small Industries Development Bank (SIDBI),” Finance Minister Pranab Mukherjee said while presenting the Union Budget on Monday.

Though several quarters felt that the amount is insufficient, it has been a move towards the right direction, experts said.

“The fund is not enough but it is still a good move as this would encourage banks to increase their lending and also add new customers,” Anil Bhardwaj, secretary general, Federation of Indian Micro and Small and Medium Enterprises, told Hindustan Times.

The finance ministry has already directed the public sector banks to increase credit flow into the SME sector. The government is also keeping a close watch on the credit flow of the banks into various sectors.

The Federation of Indian Export Organisation also pointed out that the move is commendable considering the constraints in the present scenario.