TANSTIA Seeks Increase in MSME Working Capital Loans from 75% to 90%

Tamil Nadu’s small industries sector has urged the Union government to increase the working capital loan limit available to micro, small and medium enterprises (MSMEs) from 75% to 90% of raw material value, as rising input costs and operating expenses put pressure on businesses.

The Tamil Nadu Small and Tiny Industries Association (TANSTIA) has submitted a representation to Union Finance Minister Nirmala Sitharaman, seeking changes to the existing bank lending arrangement. The association said the higher loan limit would help manufacturers manage cash flow and reduce the financial burden of purchasing essential raw materials.

Small and medium-sized manufacturers across Tamil Nadu produce a range of goods, including automobile components and plastic products. Their operations depend on materials such as iron, copper, aluminium, polymers and chemicals, whose prices have increased significantly, according to the industry representation.

TANSTIA president Vasudevan said banks generally provide working capital finance equivalent to 75% of the value of raw materials, requiring entrepreneurs to contribute the remaining 25% from their own funds. Borrowers must also provide collateral covering the full loan amount, adding to the financial commitments faced by businesses.

The association said prices of several key raw materials have risen by between 100% and 300%. As a result, manufacturers are finding it difficult to maintain their previous procurement volumes with the same level of working capital. Businesses are also facing higher employee wages and building rental expenses, further tightening their finances.

According to Vasudevan, a manufacturer who could previously purchase raw materials worth ₹100 with the available funds can now procure only around 60% of the earlier quantity in the prevailing cost environment. This has affected production planning and increased the pressure on working capital.

TANSTIA has asked the Centre to direct banks to raise the financing share from 75% to 90% of raw material value. The proposed change would reduce the entrepreneur’s contribution from 25% to 10%, potentially freeing up funds for other operational expenses.

The request comes as smaller manufacturers navigate volatile commodity prices and increasing business costs. If the proposal is accepted, the revised lending structure could help eligible enterprises manage procurement expenses more effectively. However, the representation does not indicate that the government has approved the requested change.