25 OCT,2020 | MEDC
With the ending of their moratorium, banks are bracing for a big jump in their NPAs and so would be reluctant to commit themselves to any more risky funding from the small-scale sector. In any case, formal banking provides just about 15% of the funding to MSMEs, the rest coming from shadow banks and other dubious sources. Under the circumstances, the government will do well to further develop the bond segment of the capital markets, as bonds can offer a range of innovative options for MSME financing. This includes the issuance of bonds from banks that aggregate MSME loans, the securitization of loans into asset-backed securities, and the issuance of mini-bonds by medium-sized enterprises. An added advantage of bonds is greater market transparency. These bonds need not be triple-A rated, but enough to serve the purpose.There is a pressing need to broaden the range of legitimatefinancial instruments for funding entrepreneurship, especially that pertaining to the smaller players.
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