Hi,   

Welcome to the 119th edition of The Pattern, a weekly newsletter where we delve into the latest in the world of finance, technology, and economy. Let’s get started.  

If you head to the FinBox blog and go way back to 2021, you’ll see several pieces on MSME credit. We talked extensively about the MSME credit gap , the reasons behind it, and the ways it can be addressed .

So, as you can imagine, I’m quite happy to see that this year’s budget has taken cognizance of the MSME industry’s credit woes. Through a series of measures, the government is taking steps to ensure improved financial access to a sector that contributes a massive 30% to India’s Gross Domestic Product.

Some of the initiatives to note include:

A credit guarantee scheme for MSMEs in the manufacturing space. This will enable access to term loans for the purchase of machinery and equipment, without the need for collateral or third-party guarantees. The former, in particular, has been a major roadblock to credit access so far.

The Finance Minister announced a mechanism to ensure continuation of bank credit to MSMEs classified as ‘Special Mention Accounts’ (SMA) for reasons behind their control. She emphasised that they specifically need support at this critical stage to avoid sliding into the NPA stage. Continued credit availability will be supported via a guarantee from a government-promoted fund.

For a sector that struggles with financial access at the best of times, credit lines virtually dry up when an SME reaches the SMA stage – all eyes are on this announcement to see how it pans out.

The initiative I’m personally most excited about is a new assessment model for MSME credit assessment by public sector banks that will not rely on external assessment. This new model allows PSBs to develop a new model that will score MSMEs based on their digital footprint.

By going beyond conventional sources of data, this is sure to enhance traditional credit scoring methods that often don’t account for the day-to-day realities of small businesses. This is especially good news for those SMEs that do not have formal accounting systems in place.

Aside from these measures, the government has doubled the upper limit for loans under the Mudra scheme, taking it from INR 10 to 20 L, and announced that export hubs will be set up as public-private partnerships to enable MSMEs and to sell their products in international markets.

Things are looking up, indeed.

That’s all from me for now – as always, leaving you with some reads that caught my eye this week.

Reading List:

• British fintech Revolut gets UK banking licence, ending three-year wait

• RBI tightens norms for cash pay-outs at banks

• The budget is a boon for fintech lenders and MSMEs

• Credit on ONDC and OCEN awaits their 'UPI moment' as deployment begins

Thank you for reading. If you liked this edition, forward it to your friends, peers, and colleagues. You can also connect with me on Twitter  here  and follow  FinBox on LinkedIn  to always get all updates.  

Cheers,  

Mayank 

All opinions expressed are my own and do not necessarily reflect the views of FinBox or its promoters.