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RBI panel suggests measures to boost MSMEs

The panel recommended a government-sponsored FoF to support Venture Capitalists or PE firms investing in the MSME sector.|
Jun 25, 2019, 02.58 PM IST
The Reserve Bank of India on Tuesday issued a report of the expert committee on Micro, Small and Medium Enterprises (MSME).

The panel in the detailed report recommended a government-sponsored Fund of Funds (FoF) of Rs 10,000 crore to support Venture Capitalists or PE firms investing in the MSME sector.

It also recommended setting up a distressed asset fund of Rs 5,000 crore to assist units in clusters where a change in the external environment has led to a large number of MSMEs becoming non-performing assets (NPA).

“This fund could then operate on the lines of the Textile Upgradation Fund Scheme (TUFS) which has been in existence over many years. This would be of significant size which makes equity investments that help unlock debt or help revive sick units,” the report said.

The MSME panel also said that Sidbi should ideally play the role of a facilitator to create a platform wherein various Venture Capital Funds can participate and in turn create a multiplier effect for providing Equity Support to MSMEs.

MSMEs in India largely rely on informal sources for equity which includes own saved funds and funding from family and friends.

Debt has been preferred mode of borrowing for entrepreneurial activity in India through products such as Loan Against Property (LAP) and jewel loans, while equity as a source of finance is being utilised by very few enterprises.

Formal sources of equity or equity-like capital for MSMEs are Angel Investors (pre-seed and seed-stage) and Venture Capital Investors (early stage but where revenues are available).

Venture Debt is a relatively new instrument in the Indian market that provides high-risk debt to early stage enterprises.

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