Budget 2020-2021: Measures to boost supply chain finance for MSMEs is well-intended

Union Budget 2020-2021 has proposed to amend ‘Factor Regulation Act, 2011’ to extend invoice financing to MSMEs via NBFCs and recommendations for app-based invoice financing loan products assume significant importance.

The proposal to launch ‘Niryat Rin Vikas Yojana (NIRVIK)’ scheme to provide higher export credit disbursement, enhanced insurance cover and reduced premium for small exporters aims at activating an important lever of the MSME growth wheel i.e. participation in Global Value Chains (GVCs). Participation in GVCs offers MSMEs considerable opportunities for growth by knowledge spillovers and by enabling them to specialise in specific processes.

Along with the NIRVIK scheme, the proposed extension of handholding support to MSMEs for technology upgradation, R&D, business strategy, etc. will increase the likelihood of MSMEs exporting more, increase their competitiveness and improve their long-term financial prospects.

These initiatives are well-intended and will boost ‘Supply Chain Finance’ penetration in India which stands at significantly less than 1% of GDP compared to around 12% of GDP in countries that are similar in size to our economy., hence, even MSMEs which have thin credit history files can now have access to funds at competitive rates.