The successive policy rate hikes made interest rates uncompetitive internationally and it has hit capital formation and investment. This was revealed in a statement published by ‘Federation of Indian Exporters Organization’ (FIEO). The body made a clear suggestion in its press release that interest rate for micro, small and medium enterprises (MSMEs) should be capped at 7 percent and for other businesses it should be capped at 9 percent.

For Small Business export sectors, FIEO also asked for interest subvention until March 2013. Rafeeque Ahmed, President FIEO, discussed the points during a meeting with Finance Ministry Officials in New Delhi. Ahmed also emphasized on small business tax breaks for both direct and indirect taxation.

The finance ministry has requested to provide inputs on issues especially concerning the creation of SME platform so as to facilitate resource for mobilization of the plan. Stakeholders are requested to provide consolidated inputs within two or three weeks. The meeting has been held to address concerns for setting up of the SME platform.

Securities and Exchange Board of India (SEBI) has finalized regulations to establish a SME exchange. Prime Minister Manmohan Singh’s task force has also recommended setting up of a dedicated stock exchange for SMEs.

In the first phase, the financial services would include withdrawal, deposits and remittances. In the second, it would grant loans. The loan products are slated to be granted through ‘General Credit Cards’ (GCC) and ‘Kisan Credit Cards’ (KCC). This would be for loans ranging from Rs 10,000 to 15,000. It is being planned that 75 percent of the population ought to be brought under the banner of overdrafts/KCC/GCC.

Rural India’s growth and development is dependent on the proper use of the financial products. The present census reveals that there are about 100,000 habitations where the population exceeds the 2000 mark. The government has made it a target to reach out to all such villages  by March 2012. Multiple channels and technology driven solutions would work together in achieving this goal.

The programme is going to be a huge boost for agricultural product suppliers, mom-and-pop stores and cottage industry. Money is being loaned out to small vendors and entrepreneurs with the aid of the branchless banking model of the State owned ‘Corporation bank’. Another good example is that of state run Indian Bank. This bank has launched a pilot project for financial inclusion, the GCC. The beneficiary gets loans from Rs 5,000 to Rs 25,000 per individual. It reaches out to traders, self-employed persons, small artisans and other entrepreneurs.

The financial inclusion scheme of the Indian Bank is targeted to farmers, agricultural labourers, salaried persons and self help groups. The eligibility of Kisan Credit Card (KCC)/ General Credit card (GCC) holders whose credit needs are taken care of separately is not included in the scheme. The reason is such borrowers mostly depend on money lenders. The bank account savings of up-to Rs 5000 is for consumption purposes. There is also the credit card facility of Rs 25,000 for productive purposes.

Earlier the RBI had asked public sector banks to increase credit flow to the small business sector.