India plans collateral-free loan scheme for SMEs and exporters

Govt is working on a collateral-free, pre-shipment loan scheme for SMEs and e-commerce exporters to support its goal of achieving US$ 2 trillion in exports by 2030. This initiative seeks to expand export credit and reduce interest rates, focusing on the track records of firms to alleviate financial challenges and address procedural trade finance issues.

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India is planning a new collateral-free, pre-shipment loan scheme aimed at supporting small and medium enterprises (SMEs) and e-commerce exporters as part of its strategy to achieve US$ 2 trillion (Rs 168 lakh crore) in exports by 2030. This initiative comes as India’s goods exports saw a modest increase of just 0.5% year-on-year in September, following two consecutive months of decline.

The government is in discussions with financial institutions and the Reserve Bank of India to develop a scheme that will offer collateral-free loans to cover production costs, such as raw materials, labor, and packaging, based on exporters’ track records. The goal is to expand export credit, lower interest rates, and introduce new financing tools.

According to the Federation of Indian Export Organisations (FIEO), presently only 15% of SME credit requirements are met by formal financial channels, even though SMEs account for 57% of India’s production.

Most banks demand collateral for loans to this segment, with interest rates often being prohibitive, leaving many SMEs struggling financially. The new scheme aims to address these issues, especially for e-commerce exporters facing “trade finance procedural” difficulties, as banks are hesitant to provide full credit for orders placed on short notice.

The program will rely on the exporter’s track record rather than order-specific credit checks, making it easier for e-commerce businesses to secure financing. Additionally, insurance coverage for banks on these loans has been raised from 60% to 90%, potentially reducing collateral requirements further.

The government is also exploring a broader working capital guarantee program (WCGP) to address the high demand for working capital from MSMEs through formal channels, providing critical support for their operational and export growth needs.

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