3.1. Road Ahead
Apparently, there are several interventions that need to be made in the context of financial products and services.
While over 20 WCS have availed of assistance from the District Central Co-operative Bank (DCCB). Most of the related WCSs are today in a virtually defunct condition. In fact, DCCB had virtually stopped credit flow to co-operatives and many are now functioning using own resources.
Working more with master weavers, weavers and NGOs, MFIs along with pro-active and more potential co-ops may be appropriate. The gradual reduction of government subsidies, declining support from apex WCS, closure of Handloom Development Corporation, closure of local spinning mill and (widely perceived) miss management at the primary WCS level have evidently caused decline in the number of societies since the 2000s. Today, most weavers are dependent on master weavers and some of the larger master weavers provide jobs to even 500 weavers under their fold.
3.2. Main Findings
With regard to the supply of credit to the cluster, the volume estimated at about Rs. 9 crore (as fresh advances) out of which Rs. 1.80 crore or 15 % is term credit and Rs. 7.20 crore or 85 % is working capital loan.
Apparently Rs. 54.27 crore was disbursed under various forms of advances to multiple priority sector beneficiary groups. Priority sector advances in the district are as per prescribed lending norms as non-priority advances stand only at Rs. 43.96 crore and non-priority sector advances stands at Rs. 972.39 crore. The Lead players in priority sector lending activity are public sector banks like the SBI in 2012–13.
MSE advances: The proportion of MSE advances in the total sector lending indicates the industry
development focus in the particular district. The MSE sector received around Rs. 54.27 crore or 5.34 % of total credit disbursement in the cluster which is about 5.58 % of total priority sector advances in 2012 – 13.
Performance of banks: Of the approximately Rs. 54.27 crore credit to the MSE sector, around 66.56% of it is provided by public sector banks, 31.60% by private sector banks and barely 1.84% by other institutions.
SBI apparently has the highest exposure in the textile handloom cluster at Bargarh-Sambalpur. With regard to the time taken for processing various loan applications, respondents are of the view that while non-institutional sources facilitate disbursement in less than 2 weeks’ time and public sector lenders take at least 4-6 weeks usually. Apparently, but for a few master weavers, most unit (weavers and co-ops) are not within the ambit of such institutions. The rates of interest levied by non-formal sources are between 38% to above 60% while for commercial banks, it ranges from 12% - 14%. Also, typical lending practices of formal institutions are asset (read collateral) based and collateral requirements are often 150 – 200 % more.
Margin Requirements: The margin requirements for loans vary from 25 to 33 per cent in many cases based on the extent of collateral that is offered by enterprises. Hence, while the Nayak committee norm of 20%
of working capital gap is taken as the norm for estimation, the effective requirement by bankers is more in some cases.
In the sample surveyed, all units were micro sized.
Demand for Credit: The major demand for credit by master weaver units is for working capital to avoid cost of credit purchase and meet manpower payment needs and for extended credit sale.
Apparently, the WC– TL mix in terms of credit use and demand is even 90 % for working capital in most cases and only 10 % for term loan. This is despite the fact that many master weavers also operate their own looms in addition to sourcing from weavers on job work basis.
Sources of Credit: Apparently, a significant part of requirements of micro-sized units is sourced from non-institutional sources. Many master weavers source even 70% of their credit requirement from such sources.
Today, informal sector contribute to the balance of credit needs.
Potential Credit needs: Apparently, there is considerable under – financing of many master weaving units in the cluster. Micro sized mater weaving units require loans in the range of between Rs.5 lakh to 40 lakh per enterprise to meet working capital needs and in few cases to expand loan capacity. Typically weavers require loans ranging from Rs.50,000- 2 lakh. There is apparently scope for development of new financial products in the cluster. Industry associations also feel that banks currently offer very standardized products and new avenues for credit delivery can be explored for enterprises in the cluster. For instance, there is need for working capital credit instruments regardless of the specific nature of instrument to be oriented towards meeting the ballooning credit requirements by virtue of demand peaks over the wedding and festival seasons. This could also enable cluster firms to offer credit to customers (like wholesalers and retailers approximately). Notably, only a few master weavers have their own showrooms. BMO led interventions are also feasible in terms of facilitating an instrument of pre – sanctioned loans, operation of raw material
“banks” and the MCGFS instruments.
There is a significant credit gap for MSE’s in the cluster. There is credit demand both for working capital as well as term capital but demand is significantly more for working capital.
There is more credit requirement for working capital needs than term capital needs. The cluster is highly underfinanced with units availing broadly 50% of prescribed Nayak Committee norms for working capital, leave alone credit needs of perhaps 50% more than Nayak Committee norms by way to meet delayed payments. In addition, the production process is labour intensive than capital/technology intensive and payment for manpower is a pressing need for master weavers and weavers and co-operatives.
3.3. Recommendations and Action/Intervention Plan
The recommended products and delivery channels may be considered in terms of:
- CGTMSE instrument linkages (preferably WCTL option where feasible)with CLCSS, where feasible)
- Bills discounting instrument (basic and with receivables linked bridge financing).
- Up scaling MFI’s to offer loans for micro – enterprises.
- Purchase networks financing instrument.
- Mutual Credit Guarantee Fund Scheme (for group loans of between Rs.2 – 20 Lakh). This instrument though targeted at job-working weavers could also be deployed for assisting smaller master weavers.
The following Table summarily presents an action/intervention plan. These instruments may be delivered directly to cluster firms by FIs and some like MCGFS and purchase network financing through BMOs or SPVs of firms:
Table 17 Intervention/Action Plan
CGTMSE scheme IA (in association with BMOs and
Instrument
MCGF instrument IA (in association with NGOs,
An implementing agency could be identified which could co-ordinate and catalyze implementation of the interaction/ action plan to redress financial gaps in the cluster over a time-frame of 3 years. The action plan for reducing credit gaps may be pursued in close co-ordination with that of a BDS market
facilitating/market development related agency. The cluster firms have received support by a range of Government schemes and under the IHCDP, nevertheless, credit gaps remain of serious concern.