Framework for accreditation of credit counsellors on anvil:RBI

In order to ease flow of credit to MSME sector, RBI Deputy Governor S S Mundra today said the apex bank would soon put in place a framework for accreditation of credit counsellors who are expected to serve as facilitators for small businesses.
"For bridging the information asymmetry on the MSME borrowers side, the RBI is initiating a process for putting in place a framework for accreditation of credit counsellors who are expected to serve as facilitators and enablers for micro and small entrepreneurs," he said at an industry event.
Since MSMEs are enterprise with little credit histories and with inadequate expertise in preparing financial statements, credit counsellors will assist the borrowers in preparing their projects reports and also help banks make better informed credit decisions, he said.

Mundra also said the RBI will soon issue final guidelines for Peer to Peer (P2P) lending.
New players have entered MSME lending landscape in form of P2P companies, he said, adding these entities use an online platform to match lenders with borrowers to provide unsecured loans and mostly for receivables financing.
P2P lending has potential as an alternative form of low-cost finance as it can reach to the needy where formal sources are unable to reach or unwilling to lend, he said.

He noted that RBI has been mindful of a need to regulate these entities without stifling their ability to innovate.

To increase presence of banking system, Mundra said, the RBI has given licence 10 entities for small finance bank.
A couple of them have started operation and remaining will be operational during course of the year, he said.
In order to solve the problem of delayed payment to MSMEs, he said, the RBI has licenced three entities for operating the Trade Receivables Discounting System (TReDS).
"The system would facilitate the financing of trade receivables of MSME enterprises from corporate and other buyers, including government departments and public sector undertaking through multiple financiers," he said.
The objective is to create Electronic Bill Factoring Exchanges which could electronically accept and settle bills so that MSMEs could encash their receivables without delay, he said.

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According to MSME ministry's Annual Report for 2015-16, the sector in India today is a network of 51 million enterprises providing employment to 117.1 million persons and contributing 37.5 per cent of India's GDP.
"The development of this sector is, therefore, crucial in generating significant levels of employment across the country, more so since we have a large young and educated population which is on lookout for employment," Mundra said.
As per provisional data for period ended March 2016, total outstanding loan of the banking system to MSME sector stood at around Rs 11.1 trillion in 20.6 million loan accounts.

Contrast this to the estimated need of Rs 26 trillion and number of MSMEs at 51 million.
"The public sector banks today have close to 3,000 specialised branches which specialise in lending to MSME units. Private sector banks have built up products and processes, which enable quick disbursal of loans. Most banks have switched over to centralized credit sanctioning, which enables better turnaround time," he said.
With regard to funding requirement, the Deputy Governor said, there is a total finance requirement of Rs 32.5 trillion (USD650 billion) in the MSME sector, which comprises of Rs 26 trillion (USD 520 billion) of debt demand and Rs 6.5 trillion (USD 130 billion) of equity demand.

Talking about challenges for MSME sector, he said, an important piece of the problem is adequacy of banking outlets.
"Small entrepreneurs are spread across remote locations in the country where physical bank branches are not available. Also, the banking correspondent mechanism is yet to mature to a level where they can play a key role in credit disbursal," he said.
Second and perhaps a more import dimension is availability of credit at a time when it is required by the entrepreneur, he said, adding, ability of small entrepreneurs to withstand life cycle shocks is extremely limited and hence availability of timely credit becomes critical for their survival.

"The formal financial system, due to a variety of reasons, which may include cumbersome procedures, lack of understanding of the business model, inability of the entrepreneur to meet the requirements of the banks etc, is unable to meet this immediate need of the entrepreneur," he said.
Reeling out various measures to promote MSME financing, Mundra said, "we have advised the banks to keep a provision for additional credit limits (Standby Credit Facility for term loans and an additional provision within the overall working capital limits) in order to provide timely financial support to Micro and Small enterprises facing financial difficulties during their lifecycle."

Another key step in the direction of supporting the firms in distress is the issuance of guidelines on the Framework on Revival and Rehabilitation of MSMEs, which provides a framework for rehabilitation to units which are potentially viable, but are under temporary duress, he said.