NSIC’s raw material assistance scheme needs to be more user-friendly

MSMEs feel that the 100 per cent bank guarantee alone is not sufficient. The paper work and rate of interest also need to be reduced

By Srabani Sen

Thursday, March 03, 2014:The Raw Material Assistance Scheme, offered by the National Small Industries Corporation (NSIC), a Government of India enterprise under the Ministry of Micro, Small and Medium Enterprises, has the potential to become a popular scheme among India’s small and medium organisations. It finances the purchase of raw material, both indigenous and imported.

“As the individual requirement for raw materials of each Micro, Small and Medium Enterprise (MSME) is typically very small, these small firms are not able to procure at the best prices. Keeping this in mind and in order to make the Raw Material Assistance Scheme more lucrative, the NSIC has tied up with several manufacturers of raw materials for bulk procurements on behalf of the MSMEs,” explains Sunil Bali, general manager, Business Development, NSIC.

Benefits of the scheme

When an MSME wants to avail assistance under the raw material scheme, it gets three types of benefits:

• MSMEs are helped to avail the economies of scale associated with bulk purchases, and also get cash discounts, etc.

• The benefits NSIC derives after entering into MOUs with manufacturers of raw materials are passed on to the MSMEs.

• Depending on the quantity of the raw material, NSIC gets discounts from the manufacturers, which is also passed on to the MSMEs.

• The MSMEs also get excise benefits.

• The MSMEs enjoy a credit period of up to 90 days to pay for the raw material, and in case they are unable to pay in this timeframe, they can apply to NSIC to extend the payment schedule. However, NSIC charges a rate of interest varying from 11.95 per cent to 12.95 per cent, depending on the credit rating of the MSME unit (see Box: Rate of Interest).

• NSIC takes care of all the procedures, documentation and issues a letter of credit in case of imports.

Some limitations

Omega Electronic Scale Co Ltd, which had once applied for this scheme, found the concerned NSIC officers to be very helpful. However, Nandini Dhake, managing director, Omega Electronic Scale, feels that the scheme is not very user-friendly. “To avail the scheme, an MSME has to give 100 per cent bank guarantee upfront. This does not make any business sense. And also, mountains of paper work need to be done before the funds are released,” she says.

Nandini Dhake has some recommendations to make the scheme more user-friendly. “Against a specific government supply order, registered MSMEs should request NSIC to stock raw material in bulk quantities, and release it in small quantities to MSMEs as and when required (till such time the said supply order is completed) with a one or two-month credit period (secured loan). This will help entrepreneurs, as the bulk purchase of raw material will reduce procurement costs and may also improve the quality of the end product. Entrepreneurs will also be able to manage their funds more efficiently,” she suggests.

Vinod Kapoor, general manager, Saru Smelting Pvt Ltd, who has availed benefits from the Raw Material Assistance Scheme, feels that the scheme is very beneficial to MSMEs. However, he says that the interest rate is very high. “Since the NSIC schemes are to encourage and boost the growth of MSMEs, which face stiff competition from large enterprises, NSIC should offer its financial assistance at the rate of 5 or 6 per cent per annum,” says Vinod Kapoor.

Sunil Bali, however, explains that NSIC schemes are better than bank loans. He says that banks have a number of hidden charges unlike NSIC, which is transparent. “A bank’s hidden charges include the inspection fee, commitment fee, processing fee and a fee charged even to issue the statement of accounts. NSIC schemes are free of such fees. Also, the buffer time given to pay the suppliers is very helpful. Besides, NSIC’s service is extremely efficient as we deliver funds within three days,” he says.