From enforced payment rule to KFC mandate in lending, how MSMEs were in the spotlight this week

Strict guidelines and enforced rules are something that are needed for Indian MSMEs to emerge stronger and support the growth of the economy.

This week, the Reserve Bank of India’s (RBI’s) mandate to lenders to furnish Key Fact Statement (KFS) in detail and the enforced 45-day payment rule to MSMEs created was on the spotlights. Here’s what happened:

KFS Mandate from RBI

The RBI now requires all lenders to provide borrowers with a Key Fact Statement (KFS) that outlines the terms of loan agreements, including the comprehensive annual percentage rate (APR), for both retail and MSME loans. 

This directive, disclosed by RBI Governor Shaktikanta Das during the central bank's bi-monthly Monetary Policy Committee meeting, extends the existing KFS mandate, which previously only covered loans from commercial banks to individual borrowers, digital lending by RBI-regulated entities, and microfinance loans.

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The 45-day payment rule

Finance Minister Nirmala Sitharaman had declared a new directive, effective April 1, 2024, allowing income tax expense deductions for buyers only when payments are made to suppliers, in the Micro and Small Enterprises (MSEs) space. The announcement specifies that MSMEs should receive payments within 45 days if an agreement is in place, and within 15 days in the absence of an agreement. Despite the existence of the 45-day payment rule since the enactment of the MSMED Act in 2006, its enforcement has been ineffective.

This announcement has created turmoil within the MSME ecosystem, causing some business owners to experience order cancellations and others to express concerns about meeting the 45-day payment deadline. While the intention behind this move is to alleviate challenges faced by MSMEs, it has the potential to exacerbate their situation, leading to business losses.

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Other top picks of the week:

Factor Notes

Established in 2018, Factor Notes is a Kochi-based stationery brand started by Nasaf S and Sachin S. 

After a failed business, which the brothers had started in 2015, Factor Notes has been their second stint. The brothers’ passion for designing has evolved the brand into a multi-crore revenue-generating entity, boasting a presence in 4,500 stores across India, UAE, and Africa, with a customer base of 3 million. 

Recent collaboration with Crossword, one of India's prominent stationery retail chains, has further expanded Factor Notes' reach, making its products available in Crossword's stores. 

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