Budget 2020: Invoice financing by NBFCs to boost MSMEs

The Budget 2020 proposal to allow invoice financing by NBFCs will help the micro, small and medium sector greatly, an industry body said on Saturday.

"The invoice financing by the NBFCs will help greatly the MSME sector, but it should be applicable to all registered as well as non-registered units," MSME Export Promotion Council Chairman D S Rawat said.

He said that the government should make it applicable to all units operating from conforming as well as non-conforming areas.

Rawat said that in case it becomes applicable to only registered ones, over 60 percent of the units will be left behind.

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"The lack of timely finance and working capital has always been the topmost concern for MSMEs, be it for local or global trade. The provision to enable NBFCs to extend invoice financing to MSMEs will open up an additional financing channel for MSMEs, helping in economic and financial sustainability of the MSME sector," said Pawan Gupta, CEO of trade platform Connect2India.com.

Getting timely access to capital would even allow more MSMEs to explore global opportunities as well as increase the volume of the trade, Gupta added.

He also welcomed the move for restructuring of debts by a year, but said that keeping in view the prevailing economic conditions, it should be for at least two years.

While presenting the budget, Finance Minister Nirmala Sitharaman said the government has asked the Reserve Bank to extend by a year to March 31, 2021, the debt restructuring window for micro, small and medium enterprises to give thrust to the MSME sector.

She also said a scheme will be introduced to provide subordinate debt to MSME entrepreneurs.

"This subordinate debt which will be provided by banks as quasi equity and would be fully guaranteed through credit guarantee trust for medium and small entrepreneurs, would be an additional channel for entrepreneurs and MSMEs to address their funding and financing needs," observed Pawan.

Rawat hailed the proposal to raise the turnover of Government e-Marketplace (GeM) platform to Rs 3 lakh crore, noting that it will help the MSME sector.

"But, unless the norms of procurement for preferential buying from the MSMEs is strongly monitored, its benefits will not fully be passed on to the targeted sector," he said.

(Edited by Saheli Sen Gupta)

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