RBI working on co-origination model for MSMEs

The Reserve Bank of India is working towards a formal co-origination model to give a boost to the flow of credit to the micro, small and medium enterprises (MSME) sector, SS Mundra, Deputy Governor, said.

A co-origination model is not about a bank financing a micro-finance institution (MFI) or non-banking finance company (NBFC) for on-lending to the ultimate borrowers. Rather, both of them (bank and the MFI/NBFC) join at each underwriting and loan level and share the loan amount at an agreed percentage with all other structures put in place.

“The advantage is that it can bring the strengths of the two sectors together — MFIs have better understanding of the ground level and last mile reach and banks can supplement the resources,” Mundra said at a Bankers-Borrowers Business meet organised by Assocham.

“In my mind, rather than simply going in for refinancing or on-lending, this co-origination can become an important way of catering to the MSME sector,” he added. Mundra’s remarks are significant as it comes at a time when the MSME sector is faced with challenges of non-availability of adequate, cheap and timely institutional credit.

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India’s SME Hub Won’t Be A Metro City Much Longer

According to the Confederation of Indian Industry (CII), the MSME sector is the backbone of India’s national economic structure, constantly strengthening the Indian economy in the face of global economic meltdowns and adversities. Comprised of more than 51.1 million units throughout the country, the MSME sector contributes up to 7 percent of the manufacturing GDP. It also contributes 31 percent of the GDP from service activities, and 37 percent of India’s manufacturing output to the Indian economy. Apart from that, the MSME sector also facilitates job creation. The sector has provided employment opportunities to more than 120 million people, and counting. In terms of trade, Indian SMEs contribute almost 46 percent to overall exports from the country, and has maintained a consistent growth rate of 10 percent.

The rise of the SME sector also managed to accelerate development in Tier 1 and 2 cities, and played a key role in improving the individual economic scenario in each region. In fact, the success of small businesses in these areas eventually inspired many ambitious individuals to capitalize on the host of prospects available in other markets as well, mainly in Tier 3 and 4 cities.

Tier 3 and 4 cities, the emerging SME hubs of India

While the growth and prevalence of SMEs have been generally recorded in Tier 1 and 2 cities, it seems that the trend is now slowly shifting towards Tier 3 and 4 cities as well. Inspired by increasing opportunities for such businesses, many have now begun to invest in small businesses within Tier-3 and 4 cities, and in the process allow such regions to develop at an unprecedented rate.

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MSME Sector In Telangana

Industrial sector contributes around 24% to the State GDP providing employment opportunities to 17.8% of the Work Force. It has diversified industrial base with thrust on high tech sectors including Nano-technology, bio-technology and Electronic Hardware manufacturing. At the core of its policy is manufacturing and developing Brand Telangana streaming to Make-in –India.

Manufacturing sector contributes to 55% in the total industrial sector of GVA in the state. At 2011-12 constant prices, the industrial growth recorded 9.5% in 2015-16. We hope to reach 10% in the current year and would have exceeded but for the demonetization affecting the MSMEs most.

It is important to note that the State has preponderance of the corporate sector – 89% of the net value addition is in corporate sector. This is the main reason for a specific focus on the MSME Sector. The cursed NPAs in the sector mounting to Rs.50000cr at the end of December 2016 are no less concern than those of their elder brothers. Unhealthy corporate sector and healthy MSME sector can hardly co-exist in a growing economy.

Ecosystem for growth has stabilized in the State with the Ease of Doing Business getting topmost attention of the Government. The State took pride of place in EODB, ranking number one in the country within just one year graduating from the 13th rank. The State is not complacent. It is committed to enhancing the facilitation to entrepreneurs, particularly in the rural areas. The State is predominantly rural and also industrially backward and therefore, it is rightly focusing on the core manufacturing sector.

Industrial licenses are cleared the fastest – 30 days for MSMEs through TSiPASS and 15 days for the large industries. Industrial Guidance Cell and Facilitation Cell in the CoI office and chasing cell in the CMO ensure speed of delivery with no speed money tag.

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