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Leveraging CGTMSE & GSTN to Unlock Flow-Based Lending to MSEs

Introduction

The MSME Ministry places the figure of non-agricultural MSMEs in the country at 63.38 million based on the definition under the MSMED Act, 2016 and the 73rd round of National Sample Survey. It is well-understood that access to formal finance is one of the main obstacles in the development of MSMEs. As the recently released Inclusive India Finance Report, 2018 observes, barriers to accessing finance from formal institutions include the requirement for collateral or guarantee, inflexible policies, and high rates of lending among other things.

In terms of unsecured credit, the CGTMSE was launched by Government of India and the SIDBI with the view of facilitating lending without the need for underlying collateral and guarantees to support first-generation micro and small entrepreneurs. The other facilitative framework is the Goods and Services Network (GSTN) that emerged with the enactment of Central Goods and Services Tax Act (GST) in 2017 and serves as the technological backbone for GST. Being applicable to enterprises with a turnover of INR 2 million and above, GST catalyzed a formalization wave among the erstwhile micro and small enterprises by compelling them to file returns on the basis of their sales and trade data on the GSTN database. Till date, ...

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