The Emergency Credit Line Guarantee Scheme (ECLGS) has been successful in helping Indian businesses navigate through the economic crisis caused by COVID-19, and catalysed the revival of MSMEs during and after the pandemic. That’s according to the second edition of the ongoing TransUnion CIBIL study on the flow of credit and changes in borrower behavior and performance based on ECLGS disbursals made up to 31 March 2022.

The TransUnion CIBIL study is based on ECLGS data provided by National Credit Guarantee Trustee Company Ltd (NCGTC). The ECLGS scheme was launched in May 2020 under the Atmanirbhar Bharat Abhiyan, and has been expanded and extended until 31 March 2023 with an outlay of INR 5 lakh crore. This includes the recent addition of a further INR 50,000 crore, which will be made available to enterprises in hospitality and related sectors.

Scheme has catalysed sustainable resurgence across MSME** segments

The study highlights that additional liquidity through the ECLGS not only enabled MSMEs to revive their business during the initial phase of COVID-19, but also to scale their enterprises as economic activity started returning to normal. Over the course of the four quarters since availing ECLGS, the average number of new trades opened per borrower went up by 15% compared to only 6% for the eligible borrowers who didn’t avail ECLGS. Additionally, the ECLGS has significantly helped revive contact intensive-, mobility-, and consumption-dependent sectors like services, traders, and construction, along with labor intensive industries like textile and food processing.

The study highlights that additional liquidity through the ECLGS not only enabled MSMEs to revive their business during the initial phase of COVID-19, but also to scale their enterprises as economic activity started returning to normal. Over the course of the four quarters since availing ECLGS, the average number of new trades opened per borrower went up by 15% compared to only 6% for the eligible borrowers who didn’t avail ECLGS. Additionally, the ECLGS has significantly helped revive contact intensive-, mobility-, and consumption-dependent sectors like services, traders, and construction, along with labor intensive industries like textile and food processing.

Speaking on the findings of the second edition of this study, the MD and CEO of TransUnion CIBIL, Mr. Rajesh Kumar, said, “The liquidity shortage created post the pandemic, due to paucity of inflows while at the same time continuation of obligatory outflows, could have posed possible threat of insolvency for businesses. The timely infusion provided through ECLGS has significantly helped in resurgence of businesses across geographies and at the same time helped in controlling NPAs in MSME lending. The NPA rate of 4.8% for borrowers who availed of ECLGS facility is lower than that of the borrowers who were eligible but did not avail the facility (6.1%)”.

Another crucial study finding is that borrowers who availed ECLGS have exhibited good repayment behavior. The study showed that repayment commenced in 38% of the accounts within three months from availing the facility, and went up to 82% in a year. The repayment rate has improved in the case of borrowers who availed ECLGS compared to overall repayment trends in the MSME market (excluding ECLGS borrowers).

Micro enterprises led the uptake; both public and private sector banks supplied funding

As MSMEs depend on daily cash flows, they are very vulnerable to any kind of economic crisis. These enterprises generally do not have excess reserves or a cash surplus to help them withstand a crisis situation. The ECLGS was designed to provide immediate liquidity for these enterprises. TransUnion CIBIL’s analysis shows that the scheme has been able to meet this objective, as 83% of the borrowers that availed ECLGS up to March 2022 were micro enterprises. Within this category, 54% of borrowers were those whose overall exposure at the time of availing ECLGS was up to INR 10 lakh.

Source: TransUnion CIBIL