Export-Import Bank of India is ready to give commercial banks refinance in foreign currency if they on-lend to export-oriented small and medium enterprises in the manufacturing sector.
The development finance institution has got the board’s approval to lend $500 million to banks so that they on-lend to MSMEs for technological up-gradation.
T.C.A. Ranganathan, Chairman and Managing Director, said “I am willing to explore the idea of giving foreign currency re-finance to banks for on-lending to SMEs. There is no conceptual problem with that. I am willing to raise and lend short-term money at prevailing market rates.”
SMEs account for 40 per cent of the country’s total exports. However, they have a problem in accessing foreign currency loans.
The interest difference between a foreign currency loan and a rupee denominated loan is 7 per cent, which makes accessing credit for SMEs costly.
“When SMEs account for 40 per cent of exports, then they should get at least a third of the total foreign currency credit given by banks,” said P. H. Ravi Kumar, MD and CEO, Invent Assets Securitisation & Reconstruction Pvt. Ltd.
In majority of the large economies, high-tech exports account for 22-25 per cent of the total exports, Ranganathan said at a seminar ‘Streamlining Export and Trade Finance for SMEs’ organised by the SME Chamber of India.
However, in India, hi-tech goods account for only 11 per cent of the country’s total exports.
“There is a need to increase hi-tech goods export to 25 per cent in India. There is a scope to increase these exports by $40-50 billion. Offset programme for Defence can be an attractive way to increase hi-tech exports,” he added.
MSME Classification
According to the Micro Small and Medium Enterprises Development Act, 2006, a manufacturing company which invests up to Rs 10 crore in core plant and machinery is classified as a medium enterprise.
Ranganathan said a study for benchmarking MSMEs in India with their peers abroad showed that in the US and Europe the MSME definition is $50 million and €50 million, respectively.
In Singapore and China it is $10 million. In some countries if you employ more than 200 people, then it is not a MSME.
He said, “In India it is difficult to go out there and compete if the capital definition remains so outdated, because it inhibits technology investment.”
He called on the SME chamber to agitate to redefine the definition of MSMEs to reflect the reality of times.