Govt eyes export finance mechanism for MSMEs to bridge working capital gap

The proposed mechanism, to be explored with the Department of Financial Services and industry, aims to ease working capital pressures arising from long export payment cycles

The government will examine the possibility of creating an appropriate export finance arrangement for micro, small and medium enterprises (MSMEs) in consultation with the Department of Financial Services (DFS), industry and Export Promotion Councils after exporters flagged working capital constraints arising from long export payment cycles.

 

Responding to concerns raised by industry at a Confederation of Indian Industry (CII) event on Tuesday, MSME Secretary Bharat Khera said export financing was “certainly an area worth exploring”.

 

“We can perhaps work on it in consultation with the industry as well as with the Department of Financial Services… Many of the MSMEs today are members of the Export Promotion Councils also, and we can certainly work out an arrangement for export finance,” Khera said.

   

The suggestion came after an industry representative pointed out that MSME exporters are required to pay their domestic suppliers within 45 days, while export proceeds are often realised only after goods reach overseas destinations, creating a cash-flow gap of nearly 90 days. The representative urged the government to consider a financing mechanism to bridge this mismatch.

 

Khera acknowledged that disruptions caused by the West Asia crisis had affected some export consignments and cash flows, but said the government had already introduced the Emergency Credit Guarantee Scheme to help MSMEs tide over liquidity and working capital challenges. He added that the government had also engaged with the Department of Revenue and the shipping authorities to address logistical bottlenecks arising from the crisis.

 

The secretary said access to affordable finance remains critical for helping enterprises scale up. He noted that the Credit Guarantee Scheme for Micro and Small Enterprises has enabled guarantees of nearly ₹13 trillion, significantly improving credit flow to the sector. Bank credit to MSMEs has increased from around ₹10 trillion a decade ago to nearly ₹37 trillion now, he said.

 

Referring to measures taken to ease liquidity pressures, Khera said the government had already rolled out the Emergency Credit Guarantee Scheme for MSMEs, which provides 100 per cent guarantee cover and additional credit of up to 20 per cent over existing sanctioned working capital limits. Citing information from the Department of Financial Services, he said more than ₹1 trillion had already been disbursed under the scheme.

 

He said the scheme had helped MSMEs tide over liquidity and working capital issues arising from disruptions such as the West Asia crisis, while exporters had also started exploring new markets.

 

Besides debt financing, the government has also sought to strengthen equity funding through the Self-Reliant India Fund. According to Khera, the fund has leveraged investments of around ₹58,000 crore, with equity support already extended to a large number of micro and small enterprises.

 

Addressing concerns over delayed payments, Khera described the Trade Receivables Discounting System (TReDS) as a “game changer”, saying invoice discounting on the platform has expanded sharply in recent years and around 250,000 enterprises are now onboarded. He added that payments pending beyond the statutory 45-day period are also being monitored through the MSME Samadhaan portal for central public sector enterprises.

 

On competitiveness, Khera urged larger companies to integrate MSMEs into their supply chains, saying this would facilitate technology transfer, improve quality standards and strengthen domestic value chains. He rejected the view that quality certification is prohibitively expensive for smaller firms, arguing that adopting higher standards ultimately enhances competitiveness and enables MSMEs to become part of larger manufacturing ecosystems.

 

Highlighting the government's broader formalisation efforts, Khera said registrations on the Udyam portal have increased from about 1.6 crore enterprises three years ago to around 8.84 crore now. He attributed the five-fold increase to lower compliance burdens, wider awareness and revisions to the MSME classification that removed disincentives for enterprises to grow.

 

Khera also said the government has requested the Commerce Ministry to incorporate dedicated MSME chapters in free trade agreements (FTAs), expressing confidence that smaller enterprises would increasingly benefit as these agreements are implemented. He urged industry associations to conduct awareness programmes to help MSMEs better understand and utilise the opportunities arising from FTAs.