World Bank: To increase credit for MSMEs, the government should relax lending regulations on NBFCs.

In order for The World Bank, in its most recent report, has recommended that the government abolish the interest cap on NBFCs in order to loosen lending restrictions and increase credit availability for MSMEs."Offering sufficient funding for MSMEs by enhancing NBFCs' capacity to lend to them by eliminating the current interest cap on NBFCs to qualify for guarantees offered by the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)," it stated. These suggestions center on enhancing NBFCs' liquidity availability, loosening lending regulations, and establishing risk-sharing arrangements to make bank funding for NBFCs easier.

Removing the current interest cap on NBFCs' eligibility for guarantees under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is one of the main recommendations made. According to the World Bank, removing this cap will provide NBFCs more leeway when lending to MSMEs, improving small enterprises' access to funding. The banking industry would also be more inclined to accept NBFC funding if risk-sharing arrangements were introduced for banks that lend to NBFCs.NBFCs to qualify for guarantees under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), the World Bank recommends eliminating the current interest cap.