The Indian government extended the Emergency Credit Line Guarantee scheme by regulations till November 30, 2022 in a plan aimed at increasing the credit flow to micro, small and medium enterprises in the ongoing economic revival.
Started on 20 May 2020 as part of the Atma Nirbhar Bharat initiative, the ECLG scheme offers 100% coverage for collateral-free loans to MSMEs hit by COVID. It came out at the eve of the festive season and provides more businesses the opportunity to access increased loans under the 3 lakh crore facility to manage their working capital needs.
Emergency Credit Line Guarantee Scheme : Understanding the Basics
The Emergency Credit Line Guarantee Scheme is a program of the Indian government launched under Aatmanirbhar Bharat scheme. The Scheme aims to provide relief to Micro, Small and Medium Enterprises affected negatively by COVID-19.
Under ECLG, the scheme applies to loans sanctioned till 30th November 2022 or the subsidy amount of Rs. 3 lakh crore is disbursed whichever is earlier. Key beneficiaries are medium, small & micro enterprises from manufacturing and services sectors with loans ranging below 50 crores and total turnover below Rs 250 crore. It provides preferential loans that are interest capped at 14%, with no debt payable during the first year.
The Emergency Credit Line Guarantee Scheme has extended timely liquidity support to over 60 lakh MSMEs so far but participation of medium enterprises have been restricted. Although it has assisted some cash-strapped businesses to remain operating while the pandemic continues, there are still hesitations regarding the loan amounts differential and the massive paperwork.
Under this scheme the guarantee cover has been provided by the National Credit Guarantee Trustee Company to all of Member Lending Institutions against loans.
Government’s Stand on the Decision to Extend the Loan Guarantee Scheme
The government views the extension of the Emergency Credit Line Guarantee scheme positively, considering the gradual recovery across sectors and the upcoming festive season. As per the Finance Ministry, the scheme’s extension will help various sectors manage the expected surge in demand during the festive period and attract additional borrowers.
It highlights that over 60 lakh MSMEs have already benefited from the scheme. With the economy opening up post pandemic induced lockdowns, the government aims to provide continued access to collateral free loans that can drive growth impetus. The decision aligns with its overall focus of fuelling the pace of economic revival through robust policy support.
The government underscores the ECLG scheme’s major role in addressing pressing financial requirements of MSMEs ever since its launch. It provided timely liquidity that helped small businesses stay afloat when traditional lending channels dried up. While concerns exist around limited loan amounts and documentation issues, the extension gives further stimulus to aid pandemic affected enterprises.
The government reiterates its commitment to facilitating credit flow to productive sectors through measures like ECLG to accelerate India’s economic growth trajectory.
Performance Analysis of the ECLGS Scheme to Date
The ECLGS scheme has seen significant uptake among micro and small enterprises so far. As per data, 72% of respondents constituting 59% of the ECLGS amount disbursed are micro units. This indicates the scheme’s extensive usage by early-stage businesses to meet immediate working capital needs.
Small businesses have also steadily utilised the scheme, with 9% of respondents accounting for 21% of the disbursed amount. However, medium enterprises which typically have higher credit requirements have minimally participated, with only 2% respondents representing 6% of the disbursed credit.
Analysis of disbursement amount distribution reveals insightful trends. Only 1% applicants have availed loans above Rs 10 lakh, but they account for 16.2% of the total disbursed amount. 4% borrowers have received Rs 5-10 lakh loans, comprising 20.2% of the amount. 27% applicants have accessed Rs 1-5 lakh loans, holding a 47.9% share. 18% applicants have got Rs 50,000-1 lakh loans, making 10.4% of the disbursed amount.
Key Attributes of the Emergency Credit Line Guarantee Scheme
The Emergency Credit Line Guarantee Scheme was launched under the Aatmanirbhar Bharat package to enable collateral-free loans to MSMEs affected by COVID-19.
- Eligibility: MSMEs structured as proprietorships, partnerships, registered companies and LLPs with outstanding loans up to Rs 50 crores and turnover under Rs 250 crores as on 29 Feb 2020
- Credit Limit: Additional credit up to 20% of total outstanding loans as on 29 Feb 2020
- Interest Rate: Capped at 14% p.a. for entire tenure
- Moratorium: 1 year moratorium on principal repayment
- Tenure: 4 years from loan disbursement date
- Validity: Applicable for all loans sanctioned under ECLGS till 30 Nov 2022
- Guarantee Coverage: 100% guarantee by NCGTC on defaulted loans
The scheme has provided relief from financial distress through timely credit access. While the scheme has benefited lakhs of small businesses, concerns exist regarding limited awareness among medium enterprises.
Final Thoughts
The government’s move to extend the Emergency Credit Line Guarantee Scheme till November 30, 2022 demonstrates its continued efforts to aid businesses facing economic hardship amidst the COVID-19 pandemic. As different sectors slowly recover and the festive season nears, the extension ensures ongoing liquidity support for Micro, Small and Medium Enterprises till the full 3 lakh crore stimulus is disbursed.
Despite providing considerable relief, the scheme has drawn some criticism for inequitable loan amounts and extensive documentation. However, the extension highlights the government’s commitment towards sustaining the economic revival and facilitating credit access for enterprises of varying scales.
