I welcome the recent announcement made by the Finance Minister on rolling out a new credit assessment model to provide collateral free loans up to Rs 100 crores to MSMEs. Although the announcement was made in the budget, with banks directed to develop their own credit assessment models instead of relying on third-party assessments, the real test will be in its implementation. The key question is whether it will truly benefit the MSMEs, who are often short on working capital or if they will again have to go through the different hurdles and delays that plagues access to credit. 

The decision to allow public sector banks (PSB) develop their own credit evaluation model raises both hope and concern. On one hand, as banks are closer to the ground realities of MSMEs, they can tailor their model based on their specific needs. On the other hand, this decentralisation could however lead to inconsistencies in loan approvals, with some banks adopting overly cautious approaches while others may still lean on outdated practices.

I strongly feel that for this scheme to truly benefit MSMEs, it must be accompanied by clear, standardised guidelines that prevents banks from unfairly denying loans and the focus should be on making credit decisions faster, more transparent, and based on a broader understanding of a MSMEs potential rather than just on revenues and financial performance. One such approach could be the inclusion of alternative data points—such as cash flow, market presence, and digital transactions—that provide a more holistic picture of a business's health and future prospects.

Moreover, the issue of financial literacy cannot be overlooked. Many MSME owners may not be familiar with the nuances of accessing formal credit, and banks must invest in educating them about the new credit assessment processes. This will be essential in ensuring that businesses can confidently navigate the system without unnecessary delays or confusion.

At the same time, there needs to be a monitoring and accountability framework in place to ensure that the credit assessments are being conducted fairly and that banks are fulfilling their commitments to lend to MSMEs. 

I invite your opinions.