Micro, Small and Medium Enterprises (MSMEs) are the lifeblood of any economy, contributing significantly to employment, innovation, and overall GDP. However, they are companies too and need access to capital to grow and invest in R&D. However, due to less access to timely and affordable finance for these companies, getting capital can be difficult.
In this article, we’re going to explore what the 59-Minute MSME Loan Scheme is, how it helps these enterprises, and what the advantages of these loans are in the long-term.
What is the 59-Minute MSME loan scheme?
The 59-Minute MSME Loan Scheme, which was incorporated by the Indian government in 2018, is aimed at streamlining the processes which MSMEs have to go through to get access to capital.
Under this scheme, MSMEs can get access to collateral-free business loans ranging from ₹10 lakh to ₹5 crore within the stipulated time frame of 59 minutes. The platform that lends money leverages technology to accelerate the approval process, reducing the redtapeing that business usually have to go through.
While these loans might look like they’re more risky, they’re not. The same kinds of credit checks are still conducted by government databases, but faster.
Here are some particulars of the loan:
- Loan type: MSME Loan/Working Capital Loan
- Rate of interest: 8.50% p.a. onwards
- Loan amount: Rs. 10 lakh – Rs. 5 crore
- Repayment tenure: 1 year – 15 years
- Processing fee: From 0.1% to 6% of the sanctioned loan amount
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Applying for a 59 minute MSME loan
The application process for this loan is proactively designed to be simple and convenient. This is what it looks like:
- Eligibility check: Businesses can initiate the process by checking their eligibility on the online portal based on parameters like industry, annual turnover, and business vintage.
- Online application: Businesses can submit an easy-to-understand application form online that eliminates the need for filling out multiple elaborate documents at various banks and NBFCs.
- Data integration: Data about businesses that apply for these loans is already stored on the platform and is sourced from verified sources like GST, Income Tax returns, and bank statements. Often, businesses don’t have to submit these documents themselves and wait for verification, which also saves time.
- Credit assessment: Using advanced algorithms and credit scoring models like the ones used at traditional banks, the system automatically processes the loan application in a fraction of the time spent otherwise.
- Loan offer and disbursement of funds: Upon the approval of these loans to MSMEs, the in-principle offer letter is generated with applicable interest rates and repayment terms. If the MSME accepts these terms, these funds are disbursed to the business’s registered bank account.
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Advantages of the MSME 59 minute loan scheme
There are several advantages that come with such a scheme that allows access to easy capital for small businesses.
- Fast access to funds: Timely financial support can help businesses expand as per schedule, help manage working capital requirements, and overcome temporary cash flow problems.
- Reduced collateral burden: Eliminating collateral requirements removes a significant barrier for new or growing businesses that don’t have substantial assets in the first place.
- Simplified process: The online platform and automation minimise paperwork, the time taken to search for various offers, and streamline the application process.
- Competitive interest rates: By leveraging technology and partnerships to reduce cost, lenders can afford to issue loans at lower interest rates, which reduces overall borrowing costs for everyone.
- Government backing: The initiative’s association with the government instils trust and confidence in the loan approval process.
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Overall impact on the economy
The loan scheme, launched more than half a decade ago, has been very well received by small businesses who used to struggle with acquiring capital for expansion. Thousands of businesses have availed this service to fund their business operations and capital expenditures, creating a positive push on the economy.
Underserved businesses which had potential to grow now don’t face problems raising capital. This means that their innovation and efficient operations become larger and contribute to the economy. With business growth, there comes greater investment in the workforce, leading to the generation of employment, purchase of equipment, and expansion to newer markets.
Lenders, who had to run extensive credit checks on small businesses before disbursing funds, now have an easy source of interest income with most background checks completed by a government-sponsored platform.
Conclusion
The launch of the 59 minute loans by the Indian government promotes financial inclusion in a growing economy like India. By empowering smaller businesses that are often run by families and driven entrepreneurs, this scheme has the potential to create a more vibrant and inclusive entrepreneurial ecosystem in India.
