Micro, Small and Medium Enterprises (MSME)

The Ministry of Micro, Small and Medium Enterprises, a branch of the Government of India, is the apex executive body for the formulation and administration of rules, regulations and laws relating to micro, small and medium enterprises in India.

Departments: National Small Industries Corporation
Officeholder:  Giriraj Singh  (MOS independent charge)
Headquarters:  Udyog Bhawan, Rafi Marg, New Delhi – 110 011
Annual budget: 6,552.61 crores INR (US$910 million, 2018-19 est.)

The Government of India has enacted the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 in terms of which the definition of micro, small and medium enterprises is as under:
Enterprises engaged in the manufacture or production, processing or preservation of goods as specified below:

  • A microenterprise is an enterprise where investment in plant and machinery does not exceed Rs. 25 lakh;
  • A small enterprise is an enterprise where the investment in plant and machinery is more than Rs. 25 lakh but does not exceed Rs. 5 crore; and
  • A medium enterprise is an enterprise where the investment in plant and machinery is more than Rs.5 crore but does not exceed Rs.10 crore.
  • Enterprises engaged in providing or rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006) are specified below.
  • A microenterprise is an enterprise where the investment in equipment does not exceed Rs. 10 lakh;
  • A small enterprise is an enterprise where the investment in equipment is more than Rs.10 lakh but does not exceed Rs. 2 crores; and
  • A medium enterprise is an enterprise where the investment in equipment is more than Rs. 2 crores but does not exceed Rs. 5 crores.

Bank’s lending to the Micro, Small and Medium enterprises as under is eligible to be reckoned for priority sector advances:

a) MSMEs engaged in the manufacture or production of goods to any industry specified in the first schedule to the Industries (Development and Regulation) Act, 1951 and as notified by the Government from time to time is reckoned for priority sector advances.

b) MSMEs engaged in providing or rendering of services and defined in terms of investment in equipment under MSMED Act, 2006.

  • As per extant policy, certain targets have been prescribed for banks for lending to the Micro and Small enterprise (MSE) sector. In terms of the recommendations of the Prime Minister’s Task Force on MSMEs (Chairman: Shri T.K.A. Nair, Principal Secretary), banks have been advised to achieve a 20 per cent year-on-year growth in credit to micro and small enterprises, a 10 per cent annual growth in the number of micro enterprise accounts and 60 percent of total lending to MSE sector as on corresponding quarter of the previous year to Micro enterprises.

Are there specialized bank branches for lending to the MSMEs?

  • Public sector banks have been advised to open at least one specialized branch in each district.
  • The banks have been permitted to categorize their MSME general banking branches having 60% or more of their advances to MSME sector, as specialized MSME branches for providing better service to this sector as a whole.
  • As per the policy package announced by the Government of India for stepping up credit to MSME sector, the public sector banks will ensure specialized MSME branches in identified clusters/centres with preponderance of small enterprises to enable the entrepreneurs to have easy access to the bank credit and to equip bank personnel to develop requisite expertise.
  • Though their core competence will be utilized for extending finance and other services to MSME sector, they will have operational flexibility to extend finance/render other services to other sectors/borrowers.
  • As reported by Scheduled Commercial Banks (SCBs), on March 2017, there are 2998 specialized MSME branches.

Is credit rating mandatory for the MSE borrowers?

Credit rating is not mandatory but it is in the interest of the MSE borrowers to get their credit rating done as it would help in credit pricing of the loans taken by them from banks.

Why is the credit rating of the MSME borrowers necessary?

With a view to facilitating credit flow to the MSME sector and enhancing the comfort- the level of the lending institutions, the credit rating of MSME units done by reputed credit rating agencies should be encouraged. Banks are advised to consider these ratings as per availability and wherever appropriate structure their rates of interest depending on the ratings assigned to the borrowing MSME units.

What are the guidelines for delayed payment of dues to the MSE borrowers?

With the enactment of the Micro, Small and Medium Enterprises Development (MSMED), Act 2006, for the goods and services supplied by the MSME units, payments have to be made by the buyers as under:

(i) The buyer is to make payment on or before the date agreed on between him and the supplier in writing or, in case of no agreement, before the appointed day. The agreement between seller and buyer shall not exceed more than 45 days.

(ii) If the buyer fails to make payment of the amount to the supplier, he shall be liable to pay compound interest with monthly rests to the supplier on the amount from the appointed day or, on the date agreed on, at three times of the Bank Rate notified by Reserve Bank.

(iii) For any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the interest as advised at (ii) above.

(iv) In case of dispute with regard to any amount due, a reference shall be made to the Micro and Small Enterprises Facilitation Council, constituted by the respective State Government.

How can a bank or creditor identify incipient stress in MSME account?

Before a loan account of a Micro, Small and Medium Enterprise turns into a Non- Performing Asset (NPA), banks or creditors should identify incipient stress in the account by creating three sub-categories under the Special Mention Account (SMA) category as given in the Table below

What are the salient features of the guidelines on ‘Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises (MSMEs)’?

The salient features of the Framework are as under:

i) Before a loan account of an MSME turns into a Non-Performing Asset (NPA), banks or creditors should identify incipient stress in the account by creating three sub-categories under the Special Mention Account (SMA) category as given in the Framework.

ii) Any MSME borrower may also voluntarily initiate proceedings under this Framework.

iii) Committee approach to be adopted for deciding the corrective action plan.

iv) Timelines have been fixed for taking various decisions under the Framework. The provisions made in this framework shall be applicable to MSMEs having loan limits up to Rs.25 crore, including accounts under consortium or multiple banking arrangements (MBA).

What is Trade Receivables Discounting System (TReDS)?

The objective of TReDS is to create Electronic Bill Factoring Exchanges which could electronically accept and settle bills so that MSMEs could encash their receivables without delay. This will not only give them greater access to finance but will also put greater discipline on corporates to pay their dues on time.

What is the Certified Credit Counsellors (CCC) Scheme?

In terms of the announcement in para 48 of First Bi-monthly Monetary Policy Statement, 2016-17, Reserve Bank laid down a framework for accreditation of credit counsellors which was shared with SIDBI for laying down operational guidelines. Accordingly, the scheme was launched by SIDBI in July 2017. As per the scheme, Certified Credit Counsellors are institutions or individuals registered with SIDBI who shall assist MSMEs in preparing project reports in a professional manner which would, in turn, help banks make more informed credit decisions.