The Federation of Indian MSMEs (FISME) has raised a red flag over the Reserve Bank of India’s (RBI) new proposal. The RBI wants to stop Non-Banking Financial Companies (NBFCs) from offering revolving credit facilities (loans that let you borrow, pay back, and borrow again). FISME warns that this move could hurt the working capital (money used for day-to-day operations) of small businesses. If these rules are applied, borrowing could become much more expensive and difficult for MSMEs across India.

The RBI's goal is to stop 'loan evergreening' (giving new loans to hide old unpaid ones) and opaque lending. However, FISME argues that a blanket ban is not the right answer. They believe that forcing every loan into a fixed 'term loan' structure will create a mess. It would mean more paperwork, higher processing fees, and slower approvals for small business owners who need quick cash to keep their shops or factories running.

Several popular products are at risk under this proposal. These include digital working capital lines, dealer finance, supply-chain finance, and invoice-based funding. FISME Secretary General Anil Bhardwaj noted that business credit is very different from consumer credit like credit cards. He argued that taking away these tools might drive small businesses toward unorganized lenders who charge much higher interest rates, which would hurt the government's goal of formal banking for everyone.

To help the RBI meet its goals without hurting businesses, FISME has suggested several safeguards. They propose that revolving credit should stay, but with fixed limits, annual reviews, and better reporting of borrower debt levels. They also want strict rules to stop the automatic rollover of bad loans. This way, the regulator can catch hidden stress without killing the flexible loan products that businesses actually need.

Specific platforms like TReDS (Trade Receivables Discounting System) were also mentioned. FISME believes that factoring and invoice discounting (selling bills to get cash early) must be protected. These are essential for MSMEs to manage their cash flows while waiting for payments from larger companies. The industry body is asking for these specific trade-linked funding tools to be exempted from any new bans.

For bankers and NBFC officers, this could mean a big change in how you handle small business clients. FISME has asked for a 'grandfathering' period. This means existing loans should be allowed to finish their current terms under the old rules. They have requested a transition period of six to twelve months so that both lenders and borrowers have enough time to adapt to any new framework the RBI finalizes.

Furthermore, FISME has urged that if loans must be converted into new formats to meet RBI rules, borrowers should not be charged extra. This includes skipping fresh processing fees or foreclosure charges. For digital lending, they suggest using the Digital Personal Data Protection framework to fix issues rather than stopping the credit flow entirely. The banking community is now waiting to see if the RBI will listen to these concerns and provide a middle path for MSME lending.