Online published on 28 February, 2020.
The Micro, Small & Medium Enterprises (MSMEs) contributesignificantly to the processof economic progress and growth. The MSMEs are stimulators of domestic demand through the process of employment creation, giving shape to ideas and innovation and fostering competition. In India, with over 30 million enterprises providing employment opportunities to over 70 million population, the MSME sector contributes greatly 45% of the total manufacturing sector output and over 40% of exports. The MSME sector produces over 6000 products. This sector has emerged as a highly vibrant and dynamic sector of the Indian economy over the last five decades. MSMEs not only play crucial role in providing large employment opportunities at comparatively lower capital cost than large industries but also help in industrialization of rural & backward areas, thereby, reducing regional imbalances, assuring more equitable distribution of national income and wealth.
The objective of the study was to validate the purpose of the state intervention or other-wise. Thus, the hypotheses were formulated with the objective of finding out the efficacy of the credit guarantee scheme in terms of increase in credit flow, creation of employment, increase in turnover of the Micro & Small Enterprises (MSEs) and the impact on probability of default of the loans.
The principle methodology adopted is by way of analysis of primary data collected by survey of the enterprises covered under the Credit Guarantee scheme offered by the ‘Credit Guarantee Fund Trust for Micro & small Enterprises’ (CGTMSE). The secondary data on credit to Micro & Small Enterprises and coverage under CGTMSE scheme were used alongside the primary data. A structured questionnaire survey method was used to capture the data not usually available with lending institutions. The subjective aspects pertaining to the scheme was probed during the interviews and the findings were analysed.
A paired sample analysis was deployed for the hypothesis testing to test the pre CGTMSE loan variables and post CGTMSE loan variables. A set of paired observations is from a normal population. The t test compares one set of measurements with a second set from the same sample. It is used to compare ‘before’ and ‘after’ impacts the bank loans covered under the CGS to determine whether significant change has occurred.
Ordinary Least Square method was adopted to measure and quantify the impact of the Guarantee scheme on the objectives. In our empirical analysis, we have taken the logarithmic transformation of both dependant and independent variable on dependent variable.
Logistic regression has been adopted to compute the probability of default of the MSME borrower in order to forecast defaults. Probability of default (PD) is a quantitative assessment of the likelihood that an obligor (e.g., an MSME unit) will default within a specified period of time.
The secondary data suggested that the credit to the MSME sector has been increasing. In the absence of further supporting data to establish a correlation, primary survey as stated at pre-para, it was inferred that the creditguarantee scheme hashadanimpact on theflowof credit tothe MSME sector.
The paired sample analysis revealed that there has been an increase in Turnover after administration of Bank credit under the CGTMSE mechanism. There is significant increase in profitability of enterprises post availability of Bank Loan under Credit Guarantee mechanism and there has been an average employment creation of 4.1 persons owing to credit availability under CGTMSE Scheme.
The survey results of entrepreneurs and bankers revealed that the Credit Guarantee intervention has positively impacted the credit availability to the MSE sector. The present work established that there has been positive impacts on the aspects of Turnover, profitability and employment creation of the MSEs because of availability of bank loan under CGTMSE dispensation.
