Govt launches MSME credit guarantee scheme for up to ₹100 crore loans; Check features and eligibility

The government on Wednesday launched the Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME) to facilitate credit availability for small businesses, offering a guarantee coverage of up to 60% on loans sanctioned under the scheme.

"With availability of credit to expand the installed capacity of manufacturing units, it can be expected that the manufacturing will grow at a faster pace," the finance ministry said in a statement.

"Also, the need for a credit guarantee scheme for the manufacturing units, particularly for the enterprises in the medium category has been raised by industry associations from time to time. So, to give a boost to manufacturing by facilitating the availability of credit for purchase of Plant and Machinery / Equipment, ‘Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME) is being introduced," it added.

To be eligible, borrowers must be registered MSMEs with a valid Udyam Registration Number.

The project cost can exceed ₹100 crore, but the minimum cost of equipment or machinery should constitute at least 75% of the total project cost. Loans up to ₹50 crore will have a repayment tenure of up to eight years, including a two-year moratorium on principal repayments. For loans exceeding ₹50 crore, an extended repayment period and moratorium can be considered.

As part of the scheme, an upfront contribution of 5% of the loan amount must be deposited when applying for the guarantee cover. The annual guarantee fee will be waived for the first year and charged at 1.5% per annum for the next three years on outstanding loan amounts as of March 31 of the previous year. Thereafter, it will be reduced to 1% per annum.

The scheme will remain operational for four years from the date of issuance of guidelines or until a cumulative guarantee of ₹7 lakh crore is issued, whichever is earlier.

India's manufacturing sector contributes 17% to the GDP and employs over 27.3 million workers. The government has set a target of increasing manufacturing’s share in GDP to 25%.

The new credit guarantee scheme is expected to accelerate manufacturing growth by ensuring easy credit access for purchasing plant and machinery.

MLIs, including all Scheduled Commercial Banks (SCBs), Non-Banking Financial Companies (NBFCs), and All India Financial Institutions (AIFIs), will participate in the scheme upon registration with NCGTC.