Micro, Small, and Medium Enterprises, commonly known as MSMEs, play an integral part in any nation’s financial development and growth. They add considerably to industrial output, job creation, and export revenues. These enterprises usually face difficulties, especially during economic downturns.
Furthermore, the global pandemic added more vulnerabilities in this sector, leading to disruptions in key business operations and cash flow constraints.
Therefore, to curb this pandemic-induced crisis, governments globally introduced different relief measures to help MSMEs obtain quick business loan services. One such effective initiative that governments launched was the Guaranteed Emergency Credit Line (GECL) scheme.
This blog post will give you a detailed overview of the Guaranteed Emergency Credit Line (GECL) scheme and its effect on Micro, Small, and Medium Enterprises.
Guaranteed Emergency Credit Line (GECL) Scheme: An Overview
The Guaranteed Emergency Credit Line (GECL) initiative was introduced by the Indian Government in 2020 as part of its Self-Reliant India Campaign, popularly known as Atmanirbhar Bharat Abhiyan.
The principal purpose of the initiative was to provide financial aid to Micro, Small, and Medium Enterprises facing liquidity problems due to the economic crisis. In addition, the scheme further aims to offer quick credit assistance to help these companies fulfil their functional expenditures and continue their business operations.
Besides, under the GECL loan scheme, eligible Micro, Small, and Medium Enterprises can now avail of unsecured, collateral-free credit up to 20% of their entire overdue credit limit.
These unsecured loans are given with a duration of four years, including a one-year interval on principal repayment. The initiative offers an interest rate of approximately 9.25% per annum (as of 2021). Also, it authorises a 100% credit guarantee to financial institutions and banks by the National Credit Guarantee Trustee Company (NCGTC).
Analysis of the Effect of Guaranteed Emergency Credit Line on MSMEs
Below are some common effects of Guaranteed Emergency Credit Line on Micro, Small, and Medium Enterprises (MSMEs).
Better Liquidity Position
The Guaranteed Emergency Credit Line (GECL) initiative plays a vital part in improving the liquidity position of Micro, Small, and Medium Enterprises. It offers quick access to credit without the obligation of depositing collateral, making it more effortless for small companies to obtain much-required funds during the economic crisis.
Support for Business Revival
Many Micro, Small, and Medium Enterprises were severely impacted by the economic crisis, leading to disturbances in their production and distribution mediums. The Guaranteed Emergency Credit Line (GECL) scheme’s timely monetary aid streamlined business revival measures for these companies. With the availability of adequate funds, they could continue their functions, rehire workers, and research new development opportunities.
Standard Credit Uptake
Micro, Small, and Medium Enterprises have historically faced difficulties in accessing proper credit. The Guaranteed Emergency Credit Line (GECL) scheme aimed to change this scenario by providing a seamless credit facility.
Moreover, by offering unsecured loans with a government-backed guarantee, the scheme instilled trust in financial institutions, inspiring them to extend credit to Micro, Small, and Medium Enterprises (MSMEs) that may have been deemed risky earlier.
Restricted Coverage of the MSME Sector
While the Guaranteed Emergency Credit Line scheme was a well-thought-out endeavour, some analysts claim that its effect was restricted due to certain limitations.
The scheme only covers Micro, Small, and Medium Enterprises that had existing loan accounts with financial institutions. This exclusionary standard indicates that many small companies that were not already availing of loans are left out of the initiative.
The successful enactment of any government initiative depends heavily on effective administration and sharing of data. Some MSMEs faced complications in understanding the application procedure and fulfilling the eligibility standards.
The Guaranteed Emergency Credit Line (GECL) initiative is a necessary measure taken by the Indian Government to fund the Micro, Small, and Medium Enterprises sector during challenging times.
It offers much-required liquidity to businesses, facilitates formal credit uptake, and streamlined enterprise revival measures. Despite specific restrictions and enactment challenges, the scheme adds positively to the stability of the MSME domain.
Moreover, to ensure the continuous development of the MSME sector, governments must continue executing supportive guidelines and initiatives that address the distinctive requirements and challenges faced by these companies. Also, periodic assessments of GECL are necessary to make informed modifications and better equip MSMEs to get through future economic apprehensions.