FISME Signed MoU With A Financial Guarantee Provider, Eqaro While Launching Digital Lending Platform MSMEs

The Federation of Indian Micro and Small and Medium Enterprises (FISME) and insurance contracts provider Eqaro Surety have signed agreements (MoU) to establish a digital financing infrastructure for MSMEs in the country. The portal, according to FISME, will be introduced last year and will offer MSMEs recourse to securities cash up to Rs 25 lakh to meet their immediate funding needs following due diligence on their firms. Eqaro would provide assurances to back up the payment.

FISME President’s Word

In an announcement, FISME President Prashant Patel said, “It’s like credit facilities originally fixed at Rs 25 lakh that could have been accessed whenever from anyplace should an MSME need money.” Patel & Eqaro’s Vikash Khandelwal signed a memorandum of understanding.

“Historically, financing has been dependent on security. “This unique and first-of-its-kind programme will assist MSMEs to have simpler access to loans supported by an assurance guarantee without having to put up security,” Khandelwal explained.

While surety assurances are a well-established financial tool in industrialised nations such as the United States, where they are utilised instead of conventional credit facilities or banking and performance assurances, they are still in their infancy in India, according to FISME.

Security Bond’s Status

Significantly, Nirmala Sitharaman declared this year in her budget statement that surety bonds would be accepted as an alternative for promissory notes in governmental procurement activities.

“The IRDAI has established a mechanism for insurance providers to offer guarantees,” the ministry had stated. This is likely to benefit MSME key suppliers, who can now turn to insurance companies for delivery assurance.

A surety is fundamentally an insurance and reinsurance method in which the surety firm guarantees the company’s competence to the project owner. To hedge against the risk of a bank guarantee, MSMEs normally have to provide margin cash and physical security. As a result, letters of credit limit MSMEs’ access to operating cash and prevent them from engaging in additional tenders.