Export financing at reasonable rates continues to be among the biggest obstacles to exporting from Indian Micro, Small and Medium […] The post Interest Subvention Scheme for MSME Exporters – Features, Eligibility & Implementation appeared first on Afleo.
Export financing at reasonable rates continues to be among the biggest obstacles to exporting from Indian Micro, Small and Medium Enterprises (MSME). Higher interest charges on working capital for MSME’s can negatively affect their cash flow and therefore competitiveness throughout the export process particularly when these MSME are without the financial buffer that larger enterprises have.
The government of India recognizes this constraint as such it has put an emphasis on making available to Indian exporters, both in terms of quantity and price, export financing at competitive prices, as part of an overall export promotion strategy. As part of the export financing program, the ministry of commerce and industry recently launched the “Interest Subvention for Pre and Post-Shipment Export Financing” initiative.
This new initiative will provide immediate assistance to strengthen liquidity and reduce the cost of borrowing for MSME’s for whom they were designed. The program was established on a pilot basis to allow for early feedback from stakeholders.
What Is the Interest Subvention Scheme?
The Interest Subvention Scheme is an export credit support strategy intended to decrease the cost of pre-export and post-export rupee (the Indian currency) export credit for eligible MSME exporters through the reduction of a portion of the exporter’s interest burden from the exporter’s export credit.
The subsidy on the interest burden will directly lower the exporter’s effective cost of borrowing. The support provided is restricted to the interest component of the exporter’s loan, excluding the payment of principal and all other costs associated with the loan.
It is also important to note that the scheme was developed as a rules-based and transparent method of offering interest relief to exporters. The design of the scheme has been created so as to avoid any linkage to export performance, prices of exports, the quantity of products exported, or any other conditions contingent upon exporting. The design of the scheme allows it to remain in compliance with international trade obligations, while still providing a realizable financial benefit to the country’s MSMEs.
Objectives of the Interest Subvention Scheme
The Scheme was implemented based on well-defined policy goals which are as follows.
- Enhance the liquidity levels for MSME Exporters at their most vulnerable time within their export cycle
- Provide efficient and reliable working capital funding
- Allow MSME’s to obtain export finance under competitive conditions that reflect those of world benchmark conditions
- Ensure that the assistance provided by this scheme is WTO compliant (i.e. does not include any export contingent elements) and provides pure cost of credit relief
By removing the financing constraints for MSMEs, the Scheme will provide a platform to improve the overall level of export readiness and sustainability of MSMEs.
Scope and Coverage of the Scheme
The Interest Subvention Scheme covers the following types of Export Credit:
- Export Credit prior to shipping (pre-shipment) – in Rupees.
- Export Credit after shipping (post-shipment) – in Rupees.
Applicability however has conditions:
- Credit can only be provided for those products as per the RBI’s Master Directions for Pre- and Post-shipment Export Credit
- Coverage is for the interest costs only
- Only for the Positive List of HSN Six-Digit Tariff Lines as notified by Government of India
This will help ensure the scheme remains Targeted, Verifiable, and focused at the Priority Sectors of MSME Exports.
Eligible Exporters Under the Scheme
Interest Subsidy for exporter is available to the following exporter categories:
- MSME Manufacturer Exporters
- MSME Merchant Exporters
Eligibility Requirements:
- Valid Importer Exporter Code (IEC) & Active
- Valid MSME Udyam registration
- IEC should not have been suspended, cancelled or Included on Denied Entity List (DEL).
Know more about Importer Exporter Code Registration
Exporters are entitled to receive benefits under this program only if they meet all above criteria.
Key Features and Benefits for Exporters
The Interest Subvention Scheme provides many clear advantages to MSME Exporters:
- Interest subvention rate of 2.75 percent per annum.
- Eligibility: The interest subsidy is available for micro, small and medium enterprises (MSMEs).
- Maximum benefit cap: Maximum subsidy of Rs. 50 lakhs per MSME exporter per financial year.
- Coverage: Eligible are both pre shipment rupee export credits and post shipment rupee export credits.
Additional support has also been proposed to help MSME exporters enter into new markets, which will be notified separately from this scheme. Therefore, the interest subsidy scheme’s goal of providing MSME exporters with financial assistance, as well as a way to assist them in developing their global market reach, are being reinforced by this provision.
Role of Lending Institutions and RBI
Eligible lenders continue to sanction and disburse export credit under the Scheme, as per current RBI directions. The key operational responsibilities for this will be:
- Banks pass the Interest Subvention to Eligible MSME Exporters at the time of loan approval
- Claims for reimbursement from Lenders will be forwarded to RBI for verification
- Monthly reports of both the number of claims submitted and amounts disbursed will be provided for review
- Verification to prevent an eligible exporter exceeding their annual cap for each exporter
Thus, this framework should place a minimum amount of procedural burden on exporters while still providing regulatory oversight.
Positive List of Eligible Export Products
The interest subvention scheme is available for exports that fall into a notified (positive) list of HSN six digit tariff lines. There are currently over 4000 tariff lines within the list and it will be reviewed from time to time.
Reviews of the list are carried out using objective criteria including:
- MSME share
- Sectoral nature
- Labour content
- Concentration of exports
It is the responsibility of exporters to ensure that they have correctly matched their Export Credit with tariff lines eligible for the subsidy. Failure to do so could result in recovery being sought in respect of any incorrectly or excess claimed benefit.
For the list of all the Tariff Lines under Interest Subvention Scheme Click here.
Intent Filing and Application Process
MSME exporters eligible for this program will have to complete an approved digital process in order to be eligible for the program’s benefits. The exporter will have to submit their intent electronically in advance of obtaining an Export Credit.
- A unique identifier number or “UIN” is generated by the exporter after the submission of intent has been completed.
- The exporter will then have to connect their UIN to:
- IEC (Export Import Code) Profile
- Bank Account
- Separate UINs are required for each bank that provides export credit to the exporter.
Once created, a UIN is good through the end of the applicable fiscal year.
Governance, Monitoring and Compliance
The scheme will be governed and overseen by a variety of regulatory bodies. Monitoring of the scheme will take place by means of:
- The Reserve Bank of India (RBI)
- The Directorate General of Foreign Trade (DGFT)
- The Sub-Committee on Trade Finance
Provisions for audit and recovery in cases where there have been overclaims or false claims and the use of digital tracking and reporting enables full transparency as well as accountability and adherence to the principles of public finance.
Stakeholder Consultation and Future Refinement
In the period of 30 days following the issuance of Trade Notice for inviting public comment; comments/suggestions are requested from all stakeholders.
This process is being conducted in parallel with the pilot testing of the system. The comments and operational insights gathered during the trial phase will be analyzed systematically; as a result of which the guidelines may be modified/refined, and subsequently incorporated into notifications issued under the FTP/Handbook of Procedures (HBP).
FAQ
1. What are the goals of the Collateral Support for Export Credit Program?
The program is designed to increase access to export-related working capital finance for MSME exporters who have traditionally had limited access to collateralized working capital due to a lack of sufficient collateral to pledge; and by providing a shared credit risk mechanism between lenders and government that reduces the lender’s exposure to that credit risk via a structured guarantee mechanism.
2. Will the Collateral Support be available for all types of loans?
No. The Collateral Support will only be available for export linked working capital loans. Domestic working capital loans and non-export related credit facilities are not covered by the Collateral Support.
3. Are there eligibility criteria for availing of the Collateral Support?
Eligible applicants for the Collateral Support are MSME manufacturer exporters and MSME merchant exporters registered in the Central Government’s “MSME Udyam Registration” system and possessing a valid Import Export Code (“IEC”) issued by the Directorate General of Foreign Trade (“DGFT”). The Collateral Support is only applicable to merchandise exports.
4. How much of the loan amount can be guaranteed under the Collateral Support Scheme?
Guaranteed Coverage Under the Scheme:
- Up to 85 percent of the sanctioned loan amount for Micro and Small Enterprises;
- Up to 65 percent of the sanctioned loan amount for Medium Enterprise;
- A Maximum Ceiling of Rs. 10 Crore Per Exporter for the Fiscal Year 2025-26.
5. Which organizations will implement the Collateral Support Scheme?
The Collateral Support Scheme will be implemented through the Credit Guarantee Fund Trust for Micro and Small Enterprises (“CGTMSE”) with Policy and Administrative Oversight provided by the Department of Commerce and DGFT.
6. Do exporters need to submit an Intent to Export on the DGFT Portal?
Yes. All eligible exporters must first submit an online Intent to Export on the DGFT Portal prior to submitting an application for Export Credit. Once submitted, a Unique Identification Number (“UIN”) will be generated and required to proceed with processing.
7. If an exporter is already using other CGTMSE Schemes, will they still qualify for the Collateral Support?
Yes. The Collateral Support Scheme will provide additional collateral support for export credit to Micro and Small Enterprises in addition to existing CGTMSE Schemes, subject to compliance with conditions as notified.
8. Is the Collateral Support a Permanent Program or Time-Bound?
The Collateral Support Scheme is currently being implemented on a Pilot Basis. Whether the program continues, is modified, or expanded will be based upon the results of the pilot program and comments from stakeholders received during the Consultation Period.
Conclusion
Niryat Prothsahan’s Interest Subvention Scheme for MSME Exporters is an essential policy effort designed to minimize interest rates to improve MSME export competitive position. The subvention scheme provides eligible MSMEs with better and more affordable export financing, thus addressing one of the biggest obstacles that they face when exporting.
During the pilot phase eligible MSMEs are encouraged to fully engage, which includes meeting all intent filing deadlines and procedural obligations. As a major component of the Niryat Prothsahan Mission, this subvention scheme will provide significant support to the continued development of India’s export financing system; thus assisting in furthering sustainable export growth in multiple industries.
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