Busting Misleading Claims: 59 Minutes MSME Scheme

Government of India has recently announced a scheme for MSME companies. As per scheme government has setup a public sector company to do initial credit appraisal of MSME companies in just 59 minutes. This company will provide in-principle loan approval upto INR 1 Cr. Loan processing time and transparency has been major roadblock for MSME Companies in obtaining formal funding.¹The scheme effectively aims to reduce loan processing time and bring transparency to MSME credits.

This blogs gives counter-view and reality checks to confusing and misleading claims of Video of HW News Channel featuring Mr. Sujit Nair, Managing Editor of HW News Network and Mr. Akhilesh Bhargava Business Editor of HW Business and Finance.

Link to Video: https://www.youtube.com/watch?v=K7WnItuQOX4

Misleading Claim-1: Bank asked for collateral for INR 85 Lac loan.

Reality 1: The 59 minute scheme is to efficient way of credit appraisal of MSME, i.e. those who have good financial health can get loan as per their requirement. This scheme is neither free money allotment in 59 minutes nor irresponsible lending; it is an efficient and transparent way of money lending. A banking loan is provided against Collateral and prime securities. Collateral is security for a lender that it can get back its money if borrower defaults. It is prudent for any bank to ask for collateral. this is scheme just target that well deserved MSME can be connected to formal financing and can save 8-10% of interest cost.

Misleading Claim 2: In principal approval given in 47 minutes not money!

Reality 2: This public company does initial credit appraisal of borrower and estimates amount of loan can be given, hence the term in-principal approval. As discussed earlier as company targets efficient way of lending not providing free money. Loan must be given after proper due diligence, this company does initial due diligence and provides opportunity to MSME to get loan faster. Sometimes, Bank can deny the loan if further due diligence indicates that risk attached to lending are more than bank want to take.

Misleading Claim 3: Amount charged INR 1,180 paid to private company.

Reality 3: Capital world is Public Sector Company as it is owned by SIDBI and other PSU banks. PSB owns nearly 56% of stack, hence clearly it is government entity. The video try spread wrong information and make false claim.

Misleading Claim 4: MSME need to share financial data with Private Company.

Reality 4: Again false information, it is public company owned by same banks, which will finally provide the loan. In simple terms, these banks have created a subsidiary to initial financial appraisal of prospective MSME borrower. Moreover, how anyone can do the due diligence without actual financial numbers.

Misleading Claim 5: Company does not full-fill SIDBI tender criteria

Reality 5: Conditions the video is talking are condition for hiring independent consultant. Then try to confuse the viewer that current company does not full-fill the criteria. It is note-worthy that no contract is given to capita-world. In current case, SIDBI and PSBs have acquired a company and enhanced it with necessary domain know-how and funding. It is clear case of acquisition and enhancing internal capability. Just like Bansals brother no longer runs flipkart and all decision are taken by its new owner wall-mart. Similarly, Capitaworld now owned by SIDBI and PSBs, hence it is also a public sector company. SIDBI and PSBs has majority in Board also. Hence, no decision can be taken by company without the approval of SIDBI and PSBs. Moreover, take-over was done by investment arm of SIDBI after proper due diligence. SIDBI DMD Manoj Mittal said “We had invested in an existing company because they had invested in technology and developed the algorithms for credit appraisal"

Misleading Claim 6: Why pay INR 1180, if loan does not get sanctioned.

Reality 6: Amount is only charged, who are get in-principal approval. So if some-one is not eligible for loan, need not to pay a single penny. If your eligible for in-principal approval but you don't want to use this service, need not to pay single penny. Amount only paid by eligible MSME to get loan. In general banking loan banks charges close to 1% as processing fees, so for a loan of INR 1 Cr, 1 lac need to be paid to lending banks as processing fees. Here, charges are just INR 1000, which just 0.01% for INR 1 Cr loan and just 0.1% for 10 lac loan. Anyone remotely aware about cost of credit appraisals will tell you that INR 1180 is very small amount and will not cover cost of due diligence process. Company has to check CIBIL scores of all the directors, a single CIBIL score costs INR 800. Clearly, this service fees of INR 1180 just token fees for process.

At last, this blog just want to share light on banking modalities and perspective on scheme so that viewer/readers do not get mislead by confusing/incorrect representation by anyone.

Reference:

1.    https://www.thehindubusinessline.com/money-and-banking/nearly-40-of-lending-to-msmes-is-through-informal-channels/article25560192.ece.

2.    https://timesofindia.indiatimes.com/business/india-business/sidbi-psbs-own-msme-loan-site/articleshow/66538930.cms