Interest Subvention Scheme for MSMEs

One of the backbones of the fast-growing Indian economy is the country’s MSMEs, or micro, small and medium enterprises. Considered crucial to the country’s economic growth, for MSMEs to continue their growth trajectory and compete against giant institutions, there is always a need for adequate and timely financing. For this reason, MSMEs constantly remain under the government’s focus areas through various benefit schemes rolled out from time to time. 

With different types of concessions like collateral-free financing, tax benefits, easy credit facilities, and low interest rates, MSMEs can experience faster growth in lesser time. One of the recent schemes launched by the government to aid MSME growth is the ‘Interest Subvention Scheme’. 

Here are the details about this scheme, including key features, eligibility, and additional changes introduced by the government.

What is the interest subvention scheme?

The Interest Subvention scheme was launched in November 2018 by the government of India, specially to cater to the MSME sector. Under this, all GST-registered MSMEs can get a 2% interest subvention on fresh or incremental loans. The objective of the scheme is to help MSMEs expand the scope of their operations by giving them access to cheaper credit facilities. 

Some of the key features of this scheme are:

• Under this scheme, scheduled commercial banks and cooperative banks can act as lending institutions.
• Eligible MSMEs can avail interest relief of up to 2% annually on outstanding term loans or working capital loans.
• The scheme covers all term loans and working capital loans offered to MSMEs, up to an amount of Rs. 1 crore.
• The loan amount should not be declared a Non-Performing Asset (NPA) while applying for the interest subvention.
• This scheme offers much-needed relief to MSMEs in the manufacturing and service sectors and increases their productivity.
• MSMEs must have a valid GSTIN number to avail this relief option. To ensure this, the scheme also offers additional incentives to MSMEs with GST registration.

Eligibility criteria in interest subvention scheme

MSMEs that meet the below-mentioned criteria are eligible to benefit from this scheme:

• Should have a valid UAN or Udyog Aadhaar number
• Should have a valid GSTN number

Some of the other eligibility criteria under the scheme are:

• Any incremental term loan, fresh term loan, incremental working capital loan or fresh working capital sourced in the financial year 2018 and 2019 are eligible.
• The loan should be sourced from any scheduled commercial bank.
• Any working capital or term loan of up to Rs. 1 crore is eligible under the scheme.
• MSME exporters who take the benefit of interest subvention for pre-shipment or post-shipment credit offered by the Department of Commerce cannot seek benefits under the Interest Subvention Scheme for any Incremental credit.
• MSMEs who have already benefited from interest subvention under state/central government schemes cannot avail benefits under the proposed new scheme.

Changes in interest subvention scheme

As per observations of industry experts and financial institutions, some of the aspects of the Interest Subvention scheme acted as a hindrance to proper project rollouts. Various entities that deserved the benefits were unable to take part in the scheme. Recognising the hardships faced by the MSMEs, the government announced a few changes to the scheme. Here’s a look at the key changes:

1. Relaxation in UAN/GST requirement

As per earlier rules, an eligible MSME was required to have a valid UAN (Udyog Aadhaar Number) and GSTN number to avail the scheme benefits. However, since multiple units could not benefit from the scheme due to these criteria, the government removed the criteria for UAN requirement for entities that have GST. Also, in case GST is not applicable for an entity, the Income Tax PAN can be used. Alternatively, a loan account with a financial institution recognising an MSME is also considered valid.

2. Extension of deadline for claims

The government has extended the deadline for half-yearly claims submission. Thus, MSMEs who may have missed filling their claims earlier can make the most of this extension.

3. Relaxation in trading norms

The government has now allowed MSMEs without UAN number but involved in trading activities to take part in this scheme. This will encourage more MSMEs to carry out trading and expand their business.

4. Easy claims settlement

As part of the changes, an MSME can submit a statutory auditor certificate within the deadline for claims settlement. With easier claims settlement, MSMEs can now enjoy easier and hassle-free payments to ensure that their operations are thriving.

Conclusion

The MSME sector is a major employment generator in the country, employing close to 120 million people. As the sector continues to expand further, there will be more job opportunities created. With facilities like the Interest Subvention scheme for MSMEs, the government is constantly aiding the sector to ensure that it can contribute further to the national economy. MSMEs must try to join the GST platform since they can then be eligible for future schemes related to the GST slabs. 

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