SMEs ask for collateral-free loans to recover from liquidity crises.

Monday April 11, 2022 at 12:25 pm

Pharma small and medium enterprises (SMEs) have recently appealed to the department of pharmaceuticals (DoP) to take concrete steps to ensure that they will get collateral-free loans from the banks of the country to help them keep their businesses funded in the wake of the current liquidity crisis that was first induced by the Covid-19 pandemic.

Pharma small and medium enterprises (SMEs) account for about 30-40 percent of the Indian pharmaceutical industry’s revenue. They face difficulties availing of loans due to a strict collateral protocol and a higher interest rate. Pharma small and medium enterprises (SMEs) may not have the assets to substantiate the criteria to avail a loan. Pharma small and medium enterprises (SMEs) avail of unsecured business loans from local lenders that bear high interest and Equated Monthly Installments (EMIs), which further leads to significant cash flow problems and, ultimately, high cost of credit. There should not be any demand for collateral from the Pharma small and medium enterprises (SMEs), asserted the Indian Drug Manufacturers’ Association (IDMA) in a representation to Department of Pharmaceuticals (DoP) joint secretary Dr. N Yuvaraj.

The entrepreneurs in the industry keep devising new strategies and plan to expand their existing businesses. However, still, a large number of these entrepreneurs require better financial knowledge to steer their business growth in the right direction. Also, the Micro, Small & Medium Enterprises (MSMEs) are not able to make the crucial business decisions related to Pharma small and medium enterprises (SMEs) loans. Thus, an optimum viable interest rate is critical for availing the loan, stated the industry body.

However, in May 2020, the Union ministry of finance of India introduced the Emergency Credit Line Guarantee Scheme (ECLGS), which was the unique and dedicated entirely to providing guaranteed and collateral-free additional credit support for Covid-10-hit Micro, small & Medium Enterprises (MSMEs), Mudra borrowers in addition to various individual loans taken for business purposes. Borrowers with total outstanding loans of up to Rs. 50 crore in any commercial sector and up to Rs. 500 crore for those in the hospitality, travel and tourism, leisure, and sporting sectors classified as regular, SMA-0, or SMA-1 accounts as of February 29, 2020, are eligible for ECLGS loans. SMAs are special mention accounts that show signs of developing stress, thus possibly resulting in the borrower defaulting in servicing the debt. While SMA-0 are accounts that already have payments partially or wholly overdue for 1-30 days, SMA-1 and SMA-2 accounts have payments outstanding for 31-60 days and 61-90 days, respectively. Credit available is up to 20 percent (up to Rs. 100 crores) of Micro, Small & Medium Enterprises (MSMEs) total outstanding credit up to Rs. 500 crore. The Emergency Credit Line Guarantee Scheme (ECLGS) was further extended to March 2023, increasing the guaranteed coverage to Rs. 5 lakh crore.

Despite collateral-free additional credit support for Covid-hit Micro, small & Medium Enterprises (MSMEs), a significant number of them are reeling under aftershocks of the Covid-19 pandemic and are, thus, not able to avail of the loan under Emergency Credit Line Guarantee Scheme (ECLGS) due to technical issues.

“No doubt ECLGS is a good move as at least Rs. 2.36 lakh crore loan has already been disbursed. That means it has benefitted some MSMEs. Also, it doesn’t cater to SMA-2 accounts, and hence not many MSMEs have benefitted so far. Collateral free loan will help SMEs, left out of ECLGS, in funding their businesses,” claimed Amit Chawla, the MP Small Scale Drug Manufacturers Association secretary.