The Union Budget 2025 introduces customized credit cards for Micro, Small, and Medium Enterprises (MSMEs) with the goal of fostering growth and financial inclusion. Experts emphasize the need to reduce bureaucratic obstacles to ensure these benefits effectively reach small businesses and enhance competitiveness.
MSME Credit Card Scheme
Announced during the budget speech by Finance Minister Nirmala Sitharaman, this initiative aims to issue 1 million credit cards to micro-enterprises, each with a credit limit of ₹5 lakh. These cards are intended to simplify access to capital for MSMEs, which have struggled with financing barriers. The initiative also seeks to reduce dependence on traditional borrowing methods that often involve stringent conditions and paperwork.
The Finance Minister stated that there are over 1 crore registered MSMEs employing 75 million people, contributing 36% of the nation’s manufacturing and 45% of its exports. These MSMEs have helped position India as a global manufacturing hub.
Expert Views
Industry leaders have hailed the initiative, calling it a ‘game changer’ for micro-enterprises, especially those registered on the Udyam portal. The initiative is expected to relax working capital limitations and provide financial inclusion.
The budget has also increased the credit guarantee cover for micro-enterprises from ₹5 crore to ₹10 crore, which is expected to generate ₹1.5 lakh crore in additional credit over the next five years. This is expected to help small finance banks, NBFCs, and loan distributing agencies.
M Nagaraju, Secretary of the Department of Financial Services (DFS), highlighted that the government has increased the credit guarantee under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) from ₹5 crore to ₹10 crore. For startups, the guarantee limit has doubled from ₹10 crore to ₹20 crore, with the annual guarantee fee cut to 1% from 2% for loans in 27 focus sectors.
Importance of Reducing Bureaucratic Hurdles
Experts believe that the mere introduction of these cards will not be enough. Experts have emphasised on the importance of streamlining the loan distribution process to ensure timely access to credit for MSMEs, and reducing bureaucratic hurdles to ensure that the financial benefits of these credit cards and easy loan facilities reach the grassroots level.
The government’s focus on technology adoption and targeted support for sectors such as leather and toys is anticipated to boost competitiveness and expand the global market reach for MSMEs, resulting in overall expansion and growth.
Additional Benefits
Competitive Interest Rates: The credit cards will offer interest rates of 8-10%, lower than traditional rates of 18-20%.
Digital Tools: The Udyam portal will offer digital tools to help businesses track finances, manage payments, and leverage credit.
Digital Processing: Credit assessments will be digitally processed, factoring in turnover data from UPI transactions, bank statements, and the Account Aggregator framework. The entire process, from sanction to disbursement, will be conducted digitally.
Revised MSME Classification: The budget has raised the investment and turnover limits for MSMEs, allowing businesses to expand without losing government benefits.
Increased Credit Access: The RBI reports that only around 16% of MSMEs in India have access to formal credit in the form of business loans and the government aims to increase credit penetration to at least 25% by 2028.
Conclusion
The government aims to lay a strong foundation for MSME growth and expansion. Success hinges on the proper execution of ideas and goals, ensuring easily accessible capital and disseminating proper education through official sources. These steps are expected to foster constructive dialogue and financial inclusion.
