International

India's Modi Mulls Low-Cost Loans, Free Insurance To SMBs

India small businesses

Aiming to appease small businesses, which are a key voter bloc in India, Indian Prime Minister Narendra Modi is mulling free accident insurance to small businesses as well as low-cost loans.

According to a report in Reuters, citing two government sources with direct knowledge of the matter, Modi's move is aimed at drumming up support among small business owners in anticipation of the general election slated for May. Reuters reported small business groups have been vocally criticizing the government of Modi during the last year after many business owners were hurt by the ban in 2016 of high-value currency notes. Following that the government under Modi implemented a service tax on goods across the country that resulted in higher compliance costs, raising their ire further. In recent months Modi's  Bharatiya Janata Party (BJP) changed eCommerce rules to favor small business owners.

Reuters reported that sources can't quantify how the new measures will be implemented and how much money it will cost. On the loan front, the government in India is looking at offering a 2 percentage point discount on loans for businesses that have annual sales that are under 50 million rupees ($701,754) with the banks getting compensated for the costs. Small business owners with a good credit score can get bank loans in the 9 percent to 10 percent range. Those with less than stellar credit could be eligible for loans that charged between 13 and 14 percent, reported Reuters.

While the cheaper loans will be welcome by some small business owners, Praveen Khandelwal, secretary general of the Confederation of All India Traders, said that only 4 percent of the small businesses in India can access a bank loan, with 30 percent of loans coming from the so-called “shadow” banking sector and more than 50 percent from private money lenders. The latter charge interest rates of as much as 25 percent each month. One source told Reuters that to counter that, the government could request banks open a special window so that credit can go to more small business owners. “Employees of small traders may also get discounts on opting for state-backed insurance schemes,” one of the sources said.

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