Msme Loan

Understanding MSME Full Form

MSME stands for Micro, Small, and Medium Enterprises. These enterprises play a crucial role in driving economic growth and employment opportunities worldwide. The Ministry of Micro, Small and Medium Enterprises (M/o MSMEs) issued a Gazette notification to implement revised definitions and criteria for MSMEs from July 1, 2020. This followed a 14-year gap since the enactment of the MSME Development Act in 2006. The revision, announced under the Atmanirbhar Bharat package on May 13, 2020, increased investment and turnover limits for micro, small, and medium units. 

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What is MSME – Classification and Types

The Micro, Small, and Medium Enterprises (MSME) sector encompasses a diverse range of businesses crucial for economic growth and employment generation. As of July 1, 2020, the classification of MSMEs is based on a composite criteria of investment in plant & machinery/equipment and annual turnover.

Classification of CompaniesTurnover Threshold
Micro enterprisesUp to Rs. 5 crore
Small enterprisesUp to Rs. 50 crore
Medium enterprisesUp to Rs. 250 crore
–Net turnover is > 5 croreNet turnover > 5 crore but <50 croreNet turnover > 50 crore but <250 croreNet turnover surpasses 250 core
The net investment does not surpass 1 crore.Micro EnterpriseSmall EnterpriseMedium EnterpriseOut of MSME fold (large enterprise)
The net investment is >1 crore but <10 croreSmall EnterpriseSmall EnterpriseMedium EnterpriseOut of MSME fold (large enterprise)
The net investment is >10 crore but <50 croreMedium EnterpriseMedium EnterpriseMedium EnterpriseOut of MSME fold (large enterprise)
The net investment surpasses 50 croreOut of MSME fold (large enterprise)Out of MSME fold (large enterprise)Out of MSME fold (large enterprise)Out of MSME fold (large enterprise)


This revised classification aims to provide tailored support and incentives to businesses of varying scales, fostering entrepreneurship and economic development.

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How Do MSMEs Contribute To The Indian Economy?

Micro, Small, and Medium Enterprises (MSMEs) play a vital role in driving India’s economic growth and development. They contribute significantly to employment generation, accounting for a substantial portion of both urban and rural employment opportunities. MSMEs foster entrepreneurship, innovation, and industrialization across various sectors, thereby promoting inclusive growth. These enterprises also serve as a crucial source of income and livelihood for millions of people, particularly in rural areas, where they often form the backbone of local economies. Moreover, MSMEs contribute to exports, enhancing India’s trade competitiveness and foreign exchange earnings. By supporting MSMEs through favorable policies, access to finance, and skill development initiatives, the Indian government aims to unleash their full potential and further accelerate economic growth, job creation, and socio-economic development across the country.

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Contribution of MSMEs in Country’s Economy at Current Price

Year

MSME- Addition of Gross Value

Growth (%)

Total Addition of Gross Value

Share of MSME in GVA (%)

Total GDP

Share of

MSME in

GDP (in %)

2011-12

2622574

–

8106946

32.35

8736329

30

2012-13

3020528

15.17

9202692

32.82

9944013

30.40

2013-14

3389922

12.23

10363153

32.71

11233522

30.20

2014-15

3704956

9.29

11504279

32.21

12467959

29.70

2015-16

4025595

8.65

12566646

32.03

13764037

29.20

2016-17

4405753

9.44

13841591

31.83

15253714

28.90

Source: Central Statistics Office (CSO), Ministry of Statistics & Program Implementation

Benefits of MSME Registration:

  • Collateral-Free Bank Loans: MSMEs can access credit without providing collateral, facilitating easy funding for small and micro-businesses through schemes like The Credit Guarantee Trust Fund Scheme.

  • Subsidy on Patent Registration: Registered MSMEs receive a 50% subsidy on patent registration fees, encouraging innovation and technological advancement.

  • Overdraft Interest Rate Exemption: MSMEs enjoy a 1% interest rate exemption on overdrafts, providing financial stability during market downturns.

  • Industrial Promotion Subsidy Eligibility: Registered MSMEs are eligible for subsidies aimed at promoting industrial development, fostering growth opportunities. Eligibility criteria for MSMEs include registration and compliance with regulations.

  • Protection Against Delayed Payments: MSMEs are safeguarded against delayed payments, with buyers mandated to settle payments within specified timelines or face penalties.

  • Concessions on Electricity Bills: MSMEs benefit from reduced electricity bills, enabling cost savings and facilitating increased production capacity.

  • ISO Certification Charges Reimbursement: MSMEs can claim reimbursement for expenses incurred in obtaining ISO certification, encouraging adherence to international quality standards and facilitating export opportunities.

Challenges faced by MSMEs:

Now that you know well about what is MSME loan, you should also be aware of some challenges. MSMEs encounter numerous hurdles, from financial limitations to regulatory complexities. These challenges hinder growth, innovation, and competitiveness, impacting their ability to thrive in today’s dynamic business landscape. Some challenges are listed below –

  • Financial constraints: Limited access to affordable financing hinders growth, innovation, and productivity. Credit history gaps lead to expensive loans, and banks often demand additional collateral, resulting in loan rejections.

  • Infrastructure limitations: Inadequate investment in infrastructure constraints MSME growth. Government cluster development initiatives aim to address this issue.

  • Skilled labor shortage: Difficulty in offering competitive compensation makes it challenging for MSMEs to attract and retain skilled workers, hampering innovation and competitiveness.

  • Regulatory burden: MSMEs grapple with excessive regulatory requirements, particularly in their initial stages.

  • Lack of awareness about government support: Limited knowledge about available credit and financial assistance schemes, such as MSME loans, further complicates the situation.

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Government schemes available to MSMEs:

  1. Credit Linked Capital Subsidy Scheme for Technology Upgradation
  2. Credit Guarantee Scheme
  3. ISO 9000 certification and reimbursement scheme
  4. Participation in International Fairs
  5. Purchase and Price Preference Policy
  6. Prime Minister’s Rozgar Yojana (PMRY)
  7. Small Industry Cluster Development Program Scheme
  8. Integrated Infrastructural Development Schemes (IID)
  9. Mini Tool Rooms
  10. Support for Entrepreneurial and Managerial Development of SMEs through Business Incubators
  11. MSME MDA Scheme
  12. Assistance to Entrepreneurship Development Institutes
  13. Promotional schemes for women
  14. Schemes for weaker sections
  15. Scheme of Micro Finance Programme
  16. Scheme on (TREAD) for Women
  17. Other MSME Schemes

Opportunities in MSME

The Micro, Small, and Medium Enterprises (MSME) sector presents a plethora of opportunities for aspiring entrepreneurs and established businesses alike. With its diverse range of industries and flexible business models, MSMEs offer avenues for innovation, growth, and prosperity. One of the key opportunities lies in tapping into niche markets and addressing specific consumer needs, allowing MSMEs to carve out a distinct competitive advantage. Moreover, advancements in technology and digitalization have opened up new avenues for MSMEs to expand their reach, streamline operations, and enhance customer engagement. Additionally, government initiatives and support schemes aimed at promoting MSME development provide access to funding, training, and networking opportunities, further fueling growth prospects. Overall, the MSME sector offers a fertile ground for entrepreneurs to capitalize on emerging trends, leverage their creativity, and contribute to economic development.

Frequently Asked Questions

MSME Form I is a form filed for giving details with the ROC concerning payment, which has been outstanding for more than 45 days towards the services availed from the MSME in question. The filing of the Form in the intervals is as mentioned below: Initial Return; or Regular Half Yearly Returns
The deemed date of acceptance means, in case of no objection is made by the buyer in writing as regards a receipt of goods or services within 15 (fifteen) days from the day of the goods delivery or the services rendered.
Any entrepreneur who has a valid Aadhaar Number can apply for online MSME Registration.
To facilitate credit flow to the MSME sector and enhance the comfort level of the lending institutions, reputed credit rating agencies do the credit rating of MSME units. This rating should be encouraged. Furthermore, advice to banks is to consider these ratings based on availability and thus make an appropriate structure of interest rates depending on ratings assigned to borrowing MSME units.
To promote the growth and development of the medium and micro industries, the Government of India has amended the MSMED Act 2006 to help MSMEs get the required financial assistance to sustain their business in global competition and plan for their growth.
MSME registration is the first step to getting your business recognition and obtaining benefits from the Government of India. The entire MSME registration process is done online, and you don’t have to visit any government offices to get your MSME registration certificate. The MSME registration is a tad easy, and you can be someone other than an expert to complete MSME registration all by yourself.
The MSMED Act of 2006 amendments attempt to classify small-scale industries into micro, small, and medium-sized businesses as per their turnovers. As per the amendment Bill of 2018 in the MSMED Act of 2006, all enterprises with turnover less than five crores are classified as micro businesses, while businesses with annual turnover between 5 cr to 75 cr are classified as small businesses. If your business turnover is in the range of 75 to 250 cr, then it will be classified as a medium-sized business.
The new definition of the MSME and the classification as per investment and turnover will help the MSME sector in India to take advantage of the financial stimulus offered by the Government of India, which is in tune with 20 lakh crore. The relief package can be used to revive sick MSMEs and plan for growth.
Access to finance is a significant factor affecting the growth of the MSME sector in India. Lengthy paperwork and stringent loan eligibility requirements prevent MSMEs from getting the required finances to cut through the competition on time. Lack of infrastructure increases operation costs and puts MSMEs under financial stress. Other factors influencing MSMEs are the lack of skilled workers and globalisation, which increases competition.