Credit Guarantee For Small scale Industries 

Despite the fact that SSI sector occupies a place of pride in the national economy in terms of volume of industrial production, generation of employment opportunities and value of total exports, the sector has been languishing for want of adequate and timely availability of credit. The tiny industries and smaller of the SSI units have especially suffered on account of non-availability of working capital loans from commercial banks. It has also been experienced that though State Financial Corporations have been quite liberal in granting term-loans to first generation entrepreneures in the States and other small scale enterpries commercial banks have not been releasing working capital to those units on one ground or the other. The indifference shown by commerial banks in financing of small scale and tiny units has resulted in the steady growth of sickness in the small scale sector. During the last three decades, the Govt. of India and the Reserve Bank of India had initiated a number of measures to provide adequate and timely finance 
to the SSI units in the country. A number of high level committees were set up by the Reserve Bank of India to look into the working capital needs of this sector and to devise ways and means for ensuring smooth flow of credit. 

The Nayak Committee set up by the RBI had recommended ( in 1992) that 20% of the annual turnover of an SSI unit should be given as working capital finance by commercial banks to enable the unit to run efficiently and competitively. However, despite the recommendations of various committee's Working Groups and consistent follow-up by the Reserve Bank, the flow of credit to this sector has not increased to the desired extent. As against the recommended level of working capital at 20% of the volume of production, the existing level of financing working capital needs 
of this sector comes to nearly 8% of the total volume. The recommendations of the Committee's Working Groups followed by spate of instructions issued by Reserve Bank to commercial banks to meet the genuine credit requirements of this sector have not cut much ice with the managers of commercial banks. The managers of commercial banks, who have to process the oan proposals, tend to apply text-book norms of viability to the SSI units and their endeavour is to reject the proposals on flimsy technical grounds. Notwithstaning the policy measures intiated by the Government/RBI, what is more important is that there should be an attitudianal change among the middle level executives of commercial banks, who are generally vested with the powers to sanction loan. These functionaries generally lack necessary orientation for promoton and development of small scale and tiny industrial units. The manager are also over-cautious in advancing loans to 
such enterprises lest they should add to the non-performing assets for which they are directly accountable to their Head Offices. This perennial problem has so far defied all solutions. 

In view of the national importance of promoting small scale and tiny industries in the country for creation of job opportunities and eradication of poverty, the Govt. of India has announced various schemes to invigorate the SSI and tiny industries and to enable them to compete in the global market. The Govt. of India have formulated a Credit Guarantee Scheme for small scale industries 
for guranteeing the loans and advances up to Rs. 10 lakhs extended by scheduled commercial 
banks and select Regional Rural Banks without collaterals and /or third party guarantees to small scale industrial units including those engaged in IT software industry. While SFCs had played a major role in developing and financing small scale and tiny industries across the country these financial institutions have not been included among the `eligible institutions' for implementing the above scheme. It may be mentioned that loans and advances made by SFCs to the SSI /tiny 
sector (up to Rs. 10 lakh) by way of term-loan/working capital term-loan and composite loan formed a sizable component of their loan portfolios. 

Keeping in view the outreach of SFCs in the rural, semi- urban and backward areas of the States and their focus on promoting first generation entrepreneurs, these institutions deserve to be brought within the scope of the above scheme, as otherwise, it is felt, the very objective of the scheme will get defeated to a large extent. COSIDICI was of the view that the State Financial Corporations should also be brought within the purview of the Credit Guarantee Scheme and have
accordingly approached the Govt. of India to extend the scope of the scheme to the SFCs as well, alongwith scheduled commercial banks and RRBs. This will provide greater protection to the SFCs 
in extending loans to SSI and tiny industries in the rural and semi-urban centres of the States. 

(K. K. Mudgil)