Context: The Union government recently approved the introduction of a new credit guarantee scheme for the micro, small and medium enterprises (MSMEs) that was announced in the FY25 Budget.

• Purpose: For providing 60% guarantee coverage by National Credit Guarantee Trustee Company Limited (NCGTC) to Member Lending Institutions.

• MLIs are Financial Institutions such as Commercial Banks, NBFCs registered with NCGTC under the Scheme.

About Mutual Credit Guarantee Scheme for MSMEs

• Aim- To provide 60% guarantee coverage through the National Credit Guarantee Trustee Company Limited (NCGTC) to Member Lending Institutions (MLIs) for credit facilities of up to Rs.100 crore, enabling eligible MSMEs to purchase equipment and machinery.

• The scheme facilitates collateral-free loans from banks and financial institutions to support MSME growth and expansion.

Key Features

• Eligibility: Borrower must be an MSME with a valid Udyam Registration Number.

• Loan Amount: Guaranteed loan amount up to Rs. 100 crore (Project cost may exceed this).

• Equipment/Machinery Cost: Must be at least 75% of the project cost.

Repayment Period

• Loans up to Rs.50 crore: Up to 8 years, with a 2-year moratorium on principal installments.

• Loans above Rs.50 crore: May have a longer repayment schedule and moratorium period.

• Upfront Contribution: 5% of the loan amount to be deposited at the time of guarantee cover application.

Annual Guarantee Fee

• Nil in the first year of sanction.

• 1.5% p.a. for the next 3 years (on the loan outstanding as of March 31 of the previous year).

• 1% p.a. thereafter.

Duration of the Scheme

• Applicable to all loans sanctioned under MCGS-MSME for 4 years from the operational guidelines’ issuance or until a cumulative guarantee of Rs.7 lakh crore is reached, whichever is earlier.

Potential Benefits of the Scheme

• Credit Flow: Encouraging financial institutions to lend with reduced risk

• Manufacturing Capacity: Expanding operations with modern equipment

• Job Creation: Increasing employment opportunities through expansion

• Make in India: Supporting domestic production and global competitiveness

Other Steps taken to ease access to Credit for MSMEs

• Credit Guarantee Fund Trust for Micro and Small Enterprises to provide collateral-free loans to MSEs.

• Raising and Accelerating MSME Performance (RAMP) Program: Rs 6,000 crore investment over 5 years for MSME growth. 

• Priority Sector Lending (PSL) norms: All bank loans to MSMEs conforming to the conditions prescribed therein qualify for classification under priority sector lending.