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Special Liquidity Scheme for MSMEs launched: SIDBI

On April 23, 2020 The Small Industries Development Bank of India (SIDBI) has launched special liquidity schemes to support Micro, Small and Medium Enterprises (MSMEs) due to lockdown because of the COVID-19 pandemic outbreak.SIDBI Announces Special Liquidity Support To MSMEs

  • The schemes will cover all eligible entities with investment-grade ratings irrespective of the entity’s size & the quantum of the loans is 90 days.

Eligibility for both NBFC & MFI

A bank should have a sizeable outstanding loan portfolio to micro and small enterprises, micro credit and sound financials & should have been in operation for a minimum period of 3 years and should have earned profit for at least 2 years out of the last 3 years & must have an external rating of BBB or higher as on 31 March, 2020.

Non-Banking Financial Companies (NBFC)– must register with the Reserve Bank of India(RBI) as an Investment and Credit Company (ICC), have an asset size of at least Rs 50 crore & minimum net worth of Rs 20 crore.

Microfinance Institutions (MFI)– must be registered as a society, trust, company, Section 8 company & must have a minimum MFI grading of MfR5.

Gist about the schemes

1st scheme– To provide liquidity support to MSMEs through banks including Small Finance Banks (SFBs), NBFC including fintech NBFCs. SIDBI will provide resource support to NBFCs through term loans.

2nd Scheme– To provide liquidity support to MSMEs through MFIs . It is available to lenders with sizeable outstanding portfolios to micro and small enterprises (MSEs).

In case of banks, they must be profit-making and have a minimum net worth of Rs. 100 crores & also have non-performing assets below 10% and a minimum capital adequacy ratio of 9%.

Background
RBI has announced a liquidity facility of Rs 15,000 crore to meet credit needs of MSMEs.
SIDBI from then has announced lending to small businesses, through banks, non-bank financiers and MFIs.

What is Section 8 Company?
The Companies Act 2013 defines it as one of whose objectives is to promote fields of arts, commerce, science, research, education, sports, charity, social welfare, religion, environment protection, or other similar objectives. These companies are formed with a charitable objective of social welfare, without any intention to get any kind of profit or dividend.

What is MFI grading?
It is an ordinal measure of the scalability, sustainability and reliability of the MFI’s internal processes, controls and governance structure. It rates on an 8 point scale with MfR1 the highest and MfR8 the lowest.

About SIDBI:
Headquarters– Lucknow
Chairman & Managing Director– Mohammad Mustafa