As MSMEs face significant risk on account of delays in payment by the borrower, diversion of fund/fraud, death or major illness of the borrower, calamities and catastrophe the UK Sinha led committee has proposed group policies for death and accident cover for MSME entrepreneurs that is significantly higher than the cover currently offered under existing schemes such as Pradhan Mantri Jeevan Jyoti Bima Yojana and Pradhan Mantri Suraksha Bima Yojana.
Pointing that stress in almost 30-35 per cent of MSME accounts is due to payment delays and such catastrophe/calamities, the committee said that, “the intent must be to mitigate the impact”.
“As Group policies, these would involve significant reduction in premium payable … A portion of the sum assured could be assigned towards settling workers’ dues at the unit,” the committee said.
It added that while the insurance cover would require no subsidy support from the government, it could “be configured as an incentive for MSMEs which have been formalised, for instance, through GST enrolment or MSME registration or under the Shops and Establishments Act”.
While banks offer a rescheduling of existing loans on declaration of a natural calamity, it increases the overall leverage along with providing some immediate succour and thus in most cases the old and new debt together becomes difficult to sustain. The committee recommended that this gap can be met by either in two possible ways.
“The first would be to make changes in the Relief Manual so that a fixed amount could be given as ex gratia for MSEs in lieu of equity to enable them to restart their enterprise. The other alternative could be to set up a micro equity window, with GoI funding, operated by SIDBI for providing patient capital to formalised, calamity affected MSEs,” the committee recommended.