The Prime Minister Shri Narendra Modi has announced the scheme ‘Rs 1 crore loan in 59 minutes’ for the medium, small and micro enterprises (MSME) sector. The scheme promises collateral free business loans upto Rs.1.00 Crore with in 7 to 8 working days from the date of approval. The Central Government has taken initiatives for funding MSMEs and start up companies and compare with their performance with banks and NBFC unsecured loans in India.
The MSMEs (micro small and medium enterprises) have been recognized as prime sector of economic growth and for promoting equitable development of the Country. Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly vibrant and dynamic sector of the Indian economy over the last few decades. Over the years the MSME sector has been consistently registering higher growth rate compared to the overall industrial sector in India.
According to the Survey, the Government is committed to support the Micro, Small & Medium Enterprises (MSME) which is an important sector of the Indian economy that fosters entrepreneurship and generates employment opportunities at lower capital cost.
MSMEs not only play crucial role in employing a large sector at comparatively lower capital cost than large industries but also help in industrialization of rural & backward areas. The sector contributes significantly to manufacturing output, employment and exports of the country
Understanding the challenges faced by MSMEs in raising business loans/working capital from Banks and NBFCs has announced a novel initiative, PSB loans in 59 minutes in November 2018. Under this scheme, MSMEs can quickly borrow business loans starting from Rs. 10 Lakhs to Rs. 1 Crore. The main objective of this scheme is that the loan application and sanction process completes in just 59 minutes.
Details of ‘59 Minutes Loan’ scheme
The loan being offered under the government scheme is mainly a working capital loan of 10 lakh up to 1 Crore. The minimum business loan rate of interest offered is 8% but it may vary based on the applicant’s credit score, business activities and other factors that determine the financial health of an MSME. There are no collateral requirements for this loan, hence making it an unsecured business loan – similar to the working capital loans offered by NBFCs like Lendingkart etc., Processing fees and other charges are fixed at 1000 plus GST for borrowers.
The actual loan disbursal of the loan may take 7 to 8 working days from the time of initial approval which is given in just 59 minutes.
The rate of interest starts from 8.5% and move upwards and collateral coverage is not compulsory because these loans are connected to Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme.
Other similar existing schemes
The “59 Minute Loan” scheme is not the first scheme launched by Government of India to extend support to MSMEs and start-ups. The Pradhan Mantri Mudra Yojna (PMMY) is a scheme launched by the prime minister on April 8, 2015, for providing loans up to Rs 10 lakh to non-corporate, non-farm small/micro enterprises.
Loans extended under Pradhan Mantri Mudra Yojna (PMMY) since inception of the scheme up to December 2019 by all member lending institutions (MLIs) has crossed Rs.10.00 Lakh Crores. Loans under PMMY covered under Credit Guarantee Fund for Micro Units (CGFMU). CGFMU has been formed with the purpose of guaranteeing payment against default in micro loans up to Rs 10 lakh extended to eligible borrowers. The major drawback of this government sponsored financial scheme the average disbursement under scheme is less than Rs.50,000.00, now the question would be can anyone set up an establishment and run successfully with less than Rs.50,000.00.
Micro Units Development and Refinance Agency Limited (MUDRA), was launched as a Financial Institution on 8th April 2015 by the Hon’ble Prime Minister, provides refinance, Credit Guarantee and other development support to the last mile financial institutions, banks, Micro-finance Institutions (MFIs), Non-Banking Financial Institutions (NBFCs) and other lending institutions, which are in the business of lending to micro enterprises, engaged in manufacturing, trading, services and other income generating activities. MUDRA’s mandate includes developing the micro enterprise into a viable economic sector, through various developmental interventions, both financial and non-financial, with a view to enhance the income and employment opportunities in the country.
However, we need to understand that this is only sanctioning of a loan and not disbursement. Lending institutions may ask for further documents / clarification to process the loan.
