look news india
Mumbai: The introduction of a new assessment model in the budget for financing micro, small and medium enterprises (MSMEs) is being seen as a positive for the sector. This proposal of the Finance Minister will change the approach of banks in providing loans to small business houses.
According to the Budget proposal, public sector banks will build their in-house capacity for assessment to provide loans to small businesses instead of relying on external agencies.
Stakeholders in the MSME sector believe that this model will give a boost to the traditional valuation system for assessing creditworthiness. Traditional valuation methods rely on asset or turnover criteria. This approach will be helpful for MSMEs.
MSMEs face many challenges in getting loans. Public sector banks will now take the lead in developing a new credit assessment model based on the digital evolution of MSMEs.
The Finance Minister's proposal will bring about a significant change in the approach of banks in providing loans to small business houses, said a sector expert.
Banks have so far relied heavily on project reports provided by external agencies and companies for evaluation while lending to small businesses.
This approach has its limitations, which has led to under-financing or even over-financing in some cases, said a banker. External evaluation used to make it difficult for MSMEs to get loans.
With this new proposal, the government has acknowledged that technology-based solutions are the best way to provide loans, said an NBFC founder.
