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Slowdown pushes tiny units to money lenders

M. Soundariya Preetha
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Units appeal to Govt. and banks to ease norms

“I can show you several unit owners here who have just one or two lathes, borrow funds from private money lenders, and sell the machinery or shut down the units to repay the loans,” says J. James, President of Tamil Nadu Cottage and Tiny Enterprises Association.

A district that has thousands of micro and cottage enterprises is seeing many of these units vanishing from the industrial map during the last three years because of financial crunch.

Burdened with unscheduled power cuts, slowdown in orders, and inflation, most of these units borrow just about 25 per cent of their funds from banks. The rest comes from private money lenders and registered lending companies, adds S. Ravi Kumar, President of Coimbatore Tirupur District Micro and Cottage Entrepreneurs' Association.

Every micro-unit cluster in the city has nearly 30 private lenders. \Even they have started asking for balance sheets and inspection of machinery, Mr. James says.

The amount borrowed varies from Rs. 5,000 to Rs. 5 lakh or above and these are lent at high interest rates. “We used to borrow 25 per cent to 50 per cent of our needs earlier from the private lenders. Now, it is almost 100 per cent,” he says. This amount is used to pay wages, rent, and for raw materials.

Mr. Ravi Kumar says banks ask for balance sheet, project report and several other documents.

High interest rates

This makes it almost impossible for those who earn just Rs. 15,000 or Rs. 20,000 every month to borrow from the banks to meet all their financial needs.

Hence, these tiny units are forced to go to the private lenders, repay loans at high interest rates, and increase their financial burden.

“We have made our appeal to the Government and the banks several times to ease the norms and ensure availability of funds for the micro units. However, there is no improvement in the situation and more units are going to the private lenders,” says Mr. James.

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