The bifurcation of Andhra Pradesh is likely to further compound the woes of the MSME sector, the Institute of Small Industries and Development (ISDE) stated in its report.
A balancing act should come through promotion of a large number of new units. But, this is not easy as the constraints to growth of new units are varied, it said.
The institute though field research and discussions with entrepreneurs, bankers and other stakeholders found bankers do not typically lend without collateral as they believe the entrepreneur to be more committed to the business if s/he has pledged property as a security.
As such, most banks refuse to accept entrepreneurs' applications without collateral. Also, where the banks do entertain such loans, the upper limit under the scheme is Rs 1 crore. However, bankers typically sanction only Rs 25 lakh on collateral-free loans.
There are a number of reasons for this attitude of bankers toward the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE). The process of getting claim under CGTMSE is cumbersome and so bankers do not want to use it unless absolutely necessary.
An RBI report reveals that up to 2009, only 15 per cent of the eligible claims were filed by the bankers to CGTMSE. Bankers are used to assessing projects on the basis of collateral, whereas lending under the CGTMSE requires them to assess on the basis of cash flows.
Government officials across departments who refer CGTMSE applications to the banks are not equipped to do any due diligence on the proposals and as such, bankers do not take their referrals seriously, it stated.
"Government remains a significant source of funding to startups and its credit-linked programmes are critical for galvanising MSME startups," according to the report.
However, the impact of such programmes is sub-optimal, as reflected in the poor performance of the schemes-- the conversion ratio of beneficiary to entrepreneur is less than 50 per cent across all schemes in Andhra Pradesh and Telangana.
Further, there are high instances of loans under these schemes going bad as reflected in the NPA levels, which are over 12 per cent, under state schemes and central such as Prime Minister's Employment Generation Programme .
There are about 180,000 weavers and about 150,000 artisans in both the states. The important credit-related schemes to artisans include the aforesaid credit schemes with a revolving credit of up to Rs 2 lakh. The average loan size is from Rs 25,000-30,000. These loans are covered under the CGTMSE, while the fee, which is paid by the government.
Food processing, textiles, electronics promising
The report highlighted that sectors like food processing, textiles and electronics remain less explored by MSMEs pan-India and has the potential for significant growth.
Issues pertaining to gender roles, farm linkages, inclusivity and value-addition had to be sorted out for realising the inherent potential, the report stated.
