FIEO seeks higher credit allocation for small exporters
Inflation has touched an all time high at 7.41%. In order to contain inflation, Reserve Bank of India hiked the CRR by 50 bps on 18 April which would be implemented in two tranches - one on 26th April and the other on 9th May. The hike is expected to suck up liquidity of Rs.18,500 crore from the system.
Fearing the looming liquidity crunch for the MSME sector, FIEO President Mr. Ganesh Kumar Gupta and Director General Mr. Ajay Sahai met RBI Governor Mr. Y V Reddy at Mumbai on 3rd April, ahead of the Annual Policy announcement, and submitted the following.
-
There is a need to provide level playing field to MSME export sector. Competing countries like Malaysia, Hong Kong, China, Thailand, Singapore etc have an average interest rate of 3 to 5 % while the cost of credit for the MSMEs in India ranges between 8 to 9% and that too for a period of 90 days. Beyond this period, the credit cost goes to double digit levels, making Indian MSME export sector lose its competitive edge in international market.
-
The ECGC Premia to cover pre and post-shipment credit also add to net credit costs borne by exporters. Of late, these costs have gone up significantly and now range from 0.36% to 1.32% of the borrowings. These costs are over and above the collateral security, inventory audits etc. made by the banks.
-
While banks are at present reviewing exposure guidelines and the matter on derivatives, it may be appropriate if the Reserve Bank could issue directives on the collateral vs. exposure issue for the MSME export sector, many of whom are first generation entrepreneurs and are not in a position to offer/pledge collateral for their start-ups. It is precisely because of this that lending to the MSME sector through banks is on the decline.
-
While Corporates have been accessing loans through External Commercial Borrowings (ECBs), Companies in the SME sector have got together and are raising funds from the US through Commercial Papers (CP). By doing so, they would be raising loans at 6 to 7% against the current average of 13 to 14% provided by Financial institutions (FIs) and Banks. The directives of the Reserve Bank allocating 12% of the banks lendable resources to the export sector may be well intentioned but hassle free and collateral free loans is the need of the hour for the MSME sector.
-
The RBI on its part has provided some succor to the MSME export sector by way of the subvention scheme. However, the scheme which ended on 31st March 2008 needs to be extended at least for a year. Besides, the following may also be considered while extending the scheme further:
-
Deferred terms of credit: Credit period for pre-shipment is 180 days (270 days for carpet sector) and 90 days for post-shipment. For repatriation of export proceeds, 360 days have been granted to status holders. The period for providing pre and post shipment credit may also be contiguous with the same.
-
Cost of credit: The rate of interest prior to the said notifications was 7.75% for Gold Card Scheme and 8% for normal exports. Since, a minimum cap of 7% has been imposed providing a reduction of 0.75 to 1%, the cost of credit continues to be higher than competing countries.
-
Coverage of sectors under Subvention: Gems & Jewellery, Plantation Crops such as Tea & Coffee also labour intensive need to be included as beneficiaries of the said subvention.
-
l The Pre-shipment Credit in Foreign Currency (PCFC) is a relative low cost finance window for the MSME export sector and is to be made available at LIBOR +1%. Of late, bankers are unable to meet the requirements for PCFC credit due to non-availability of foreign currency funds. It is suggested that at least 50% of the total export credit of the MSME sector be earmarked for PCFC credit and Banks be directed to lend on a priority basis to the MSME sector. It is further suggested that for PCFC, ‘rollover criterion’ may be followed, interest spread may be brought down to LIBOR +0.25% and PCFC maybe provided in all major currencies.
|
1st East African Investment Conference at Kigali The Government of
Rwanda, through its agency, Rwanda Investment and The deliberations will focus on investment opportunities in sectors viz. Mining; Infrastructure Development; Telecommunications; Leather goods production, Energy; Tourism, ICT, Financial Services Sector; Manufacturing and Agro Processing. The Agency Conference Secretariat will handle logistics for all confirmed participants, including airport pick up, hotel booking, hotel to conference ground transportation as well as arrangements, one-on-one business meetings and field trips on request. Interested exporters may contact for more information on the conference at www.rwandainvest.com/conference under intimation to the Embassy of the Republic of Rwanda, 41 Paschimi Marg, Vasant Vihar, New Delhi-110057; Tel:011-41661604, Fax:41661605, Email:wandaembassy@yahoo.com. |
