CHENNAI: Should the State introduce a Credit Guarantee Corporation with significant capital to rescue the small-scale industries in the State that have been hit by the second wave of pandemic and lockdown? With hardly any income, the industrial units, which are struggling to pay electricity bills, could become non performing assets soon.
While the MSME sector in the State has sought help from the Centre, Small Industries Management Association president VS Narasimhan has urged the State government to float a Credit Guarantee Corporation (CGC) to rescue struggling small industries.
“The CGC could guarantee loans that are offered by financial institutions, and thus encourage the institutions to offer loans to MSMEs. They could charge a premium to be paid by the borrower and the financing institution. In the event of the borrower becoming unable to repay the amount, the CGC would reimburse it. Thus it provides insurance not only to the lender, but the borrower also,” Narasimhan said.
“The vital aspect of the scheme would be that CGC revenue comes from premiums paid by borrowers and banks, and further it could invest its large capital appropriately and earn income. As the CGC would re-insure with internationally recognised institutions, the scheme is viable and could meet the needs of banks or financial institutions,” he added. The Centre has a similar institution, notes Narasimhan.
“It is, however, not patronised by the banks, maybe because the corpus of the organisation is not large enough and that it has no re-insurance or other income, thus forcing it to take limited risks in offering guarantee and reimbursing banks,” he said. Japan and East Asian countries like South Korea and Taiwan have a similar scheme.
“Japan has a GCC in every region and they operate successfully. It is considered a single important step to encourage entrepreneurs. By creating a CGC, Tamil Nadu could be a model for other States to follow. The State could then offer support to small scale industrial units by offering interest free or low interest loans through the Tamil Nadu Industrial Investment Corporation and banks repayable over three or five years, guaranteeing the repayment through the State CGC. Initially, the guarantee could be offered to micro units with a capital of less than Rs 5 crore.
The premium charge could be a risk perception of the lender. It is learnt that the ‘Rangarajan Committee’ appointed by the government had recommended a similar scheme,” he further said. Chennai District Small Scale Industries Association president TV Hariharan says that it is not easy for a State to float its own CGC.
“The CGC is run by the Centre and it won’t allow the State to begin their own CGCs. Also, the State would not like to take up additional financial burden, if the loans are not repaid,” he said.