The Union Government is set to introduce low-interest credit cards for micro-enterprises in the coming month, helping them access working capital. The plan involves extending credit card facilities to enterprises registered on the Udyam platform, with a focus on those having trouble securing credit in the formal market.
These credit cards will help small entrepreneurs access unsecured credit and eliminate the need to provide any security when applying for loans. Such credit cards aim to include small micro-enterprises that the formal credit market has left behind for various reasons.
The upcoming low-interest credit cards would include a cap of up to Rs 5 lakh, allowing micro business owners to access short-term funds when needed. Also, the interest rate will be kept below 18%, much lower than the typical interest rates on high-interest credit cards that exceed 35%.
Also, consumers will benefit from an interest-free grace period, allowing them to pay their current bills without incurring any extra costs. The banks will offer the option to convert existing balances into EMIs at reduced interest rates. This system is ideal for businesses that experience late payments and even seasonal revenue cycles.
This loan model seeks to address the liquidity problem faced by the micro-enterprise sector today. Payment delays, rising input costs, and limited access to credit facilities pose various challenges for micro-businesses. These enterprises rely on informal loans, which earn them some interest, hence lowering their profits.
Through incentives and guarantee programs, the government will provide the necessary support for financial institutions to lend through this scheme. Such measures will help ease risks faced by lenders. The scheme will mark a new era in policy, replacing term loans with revolving credit.
This new credit card will revolutionize how micro units finance themselves.