Mumbai: To give a leg up to micro, small and medium enterprises in the diamond industry, Bank of Baroda (BoB) is planning to launch a supply chain financing product for the industry on a pilot basis in Surat, reports BusinessLine. Cutting and polishing units, which procure roughs from large companies and supply finished products back, will be provided finance at a competitive rate of interest.
This move is expected to give a boost to MSMEs as well as the corporate segment within the diamond industry, said Rajneesh Sharma, General Manager, BoB. The product will be launched in the next 10-20 days.
The public sector bank is seeking to harness the synergies arising out of the supply-chain relationship between large corporates and MSMEs. Small units in the diamond industry cannot directly import the rough stones. Large corporate clients in the diamond sector will share with the bank details of the cutting and polishing units with whom they are having business dealings.
Speaking at a banking seminar organised by World Federation of Diamond Bourses (WFDB) and Gem & Jewellery Export Promotion Council (GJEPC) in Mumbai recently, Mr. Sharma emphasized that the diamond industry should make their business model transparent to get support from the banking system.
Since diversion of funds from the main line of business to other businesses is high in the MSME segment, the bank’s product will have risk-mitigation measures by incorporating a monitoring mechanism.
Thanks to the increased loan cove under the credit guarantee scheme from ₹1 crore to ₹2 crore, the bank can provide concessional rate of interest and relax the borrower’s margin requirement from 25 per cent to 20 per cent. Under the credit guarantee scheme, banks can give collateral-free financing of up to ₹2 crore.