A Fund of Funds Likely for MSMEs: Union Budget 2020 Expectation

Prime Minister Narendra Modi himself has made it very clear that It is the MSMEs which have to get pushed and promoted in order to achieve the mammoth goal setting of 5 Trillion Dollars Economy. This sector has reached to a never-before kind of status on Indian Prime Minister’s priority list. Nitin J Gadkari, Union Minister of MSME have shown immense focus and policymaking innovation in the direction of improvising status of MSME business in India, we can clearly expect that something really big is on it’s a way for MSMEs. In this Union Budget 2020, Indian MSMEs are expecting major reforms from the perspective of credit availability and banking infra in favour of small businesses. However, there are reports in media which have given hints that Government is working on creating ‘Fund of Funds’ for micro, small and medium enterprises (MSME) sector which will be unleashed in the union budget 2020. 

Although there is nothing officially came out from the government on this subject so far but if we look at developments around the policymaking turf, we can clearly make out that something in the form of structured funding is on its a way for MSMEs.   

Former Sebi chairman U K Sinha who is heading a committee on MSME has been quoted in Economic Times that a large fund which can be categorised as Fund of Funds is in the pipeline. 

The committee had in June 2019, recommended setting up of a government-sponsored fund to help the sector.

“A government-sponsored Fund of Funds (FoF) of Rs 10,000 crore to support VC/PE firms investing in the MSME sector that will support crowdfunding from venture capital and private equity firms, which focus on investing in the MSME segment on modified term sheets developed by SIDBI. This would encourage innovation in term-sheets and product structures,” the report of the RBI committee had said.

Most likely, if this kind of fund gets introduced in the Union Budget 2020  it will be getting driven from SIDBI.  

Faiz Askari, Founder, SMEStreet

More importantly, Government authorities must have to announce some measures which may reflect ease of accessing credit for MSMEs. This is very important since we have entered into a new decade, the banking sector and specially with regards to MSMEs need an overhaul. The reason for making this point is based on challenges faced by MSMEs from banks. Since banks are still working on historically age-old techniques to give credit to MSMEs and this has given entrepreneurs a tough time.
Although there is no doubt in saying that a Fund of Funds will be a great step towards ensuring MSME-oriented approach for building the nation’s economy. Considering the fact that global scenarios are becoming somewhat unpredictable considering global political issues and the recent Coronavirus in China.

At this juncture at least to bring a smile and a ray of hope this Fund of Funds will likely to drive motivation.