Vyapar Credit Card(VCC)-New credit card planned for MSMEs to free up cash flow

Small businesses could be offered a bespoke credit card with a Rs.1-lakh limit if the government’s plan to universalise credit flows goes through.The credit card will be offered by SIDBI to Micro, Small and Medium Enterprises (MSMEs) registered on the Udyam portal.The card will pool together all the credit schemes available for MSMEs, including interest subvention, in addition to offering collateral-free loans of up to Rs.1 lakh, similar to what is provided to Kisan Credit Card (KCC) beneficiaries.

As per suggestions, Vyapar Credit Card (VCC) could be offered to MSMEs for meeting their business credit needs with provisions for enhanced credit, based on their financial performance and credit servicing abilities.VYAPAR cards will help MSMEs enter the formal financial system once they register on Udyam. The initial limit could vary between Rs.50,000 and Rs.1 lakh.The rules for providing CIBIL ratings for MSMEs may also be tweaked to allow improved and updated data flows to ratings agencies to provide fairer ratings to the sector.

VYAPAR Cards will provide MSMEs an easy and convenient access to formal credit.Formal borrowing by MSMEs is very limited at present with as high as 60% of India’s 600 million MSMEs not borrowing from banks and institutions. This has resulted in a credit gap of Rs.20-25 trillion. It is expected that VCC will provide short-term loans at low interest rates for meeting the working capital requirements of MSMEs.VCC is expected to address the credit concerns by providing cash-flowbased lending to the smallest of entities including roadside vendors and Kirana shops.

Source : Article by Subhash Narayan from the Economic & Policy section of Mint Newspaper