For MSMEs, $40 Billion Unsecured Loans, Guaranteed By Government

The loans will benefit up to 45 crore small businesses, Finance Minister Nirmala Sitharaman said.

For MSMEs, $40 Billion Unsecured Loans, Guaranteed By Government

Government will provide collateral-free loans worth $40 billion to boost liquidity for small businesses and help the economy tide over the coronavirus outbreak.

The loans will benefit up to 45 crore small businesses, Finance Minister Nirmala Sitharaman said in New Delhi on Wednesday. The program will be open until October. 31.

"Essentially this is to spur growth and to build a very self-reliant India," Ms Sitharaman said. "It addresses ease of doing business, compliance and due diligence and the intention is also to build local brands."

Prime Minister Narendra Modi Tuesday said his government will spend an amount equivalent to 10 per cent of the nation's gross domestic product to help the economy get back on its feet after weeks of stay-at-home restrictions to beat the pandemic. The resultant halt to non-essential consumption set up Asia's third-largest economy for its first annual contraction in four decades as businesses collapsed and jobs were lost.

PM Modi's spending plan totaling Rs 20 lakh crore ($265 billion) includes measures already unveiled by the government and also by the central bank such as provision for cheap cash to banks and the reduction in its cash reserve ratio.

The details of the package will be shared in tranches, Ms Sitharaman said, adding that today's announcement covers 15 different measures, including six pertaining to small businesses and more will be announced over the course of the next few days.

As part of the plan, small firms will be eligible to borrow collateral-free automatic loans for a four-year tenor with 12-month freeze on principal repayments. The loans will be guaranteed by the government.

The plan also includes:

  • Injecting Rs 20,000 crore subordinate debt for stressed small firms, wherein banks will lend to founders who will then infuse it as equity into the business
  • Small businesses already in default can also avail the facility
  • Proposes Rs 50,000 crore injection into these businesses through a fund of funds with corpus of Rs 100 crore

Equity futures on NSE Nifty 50 Index traded in Singapore were in the green after the announcement, while the local benchmark S&P BSE Sensex index closed with the biggest gain in almost two weeks.

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