The Government of India has approved the Mutual Credit Guarantee Scheme (MCGS-MSME) to enhance credit accessibility for Micro, Small, and Medium Enterprises (MSMEs). The scheme, introduced by the Ministry of Finance, fulfills a 2024-25 budget announcement and aims to provide 60% guarantee coverage for loans up to ₹100 crore for eligible MSMEs seeking to purchase plant and machinery or equipment.
Key Features of the Scheme:
- Eligibility: The borrower must be an MSME with a valid Udyam Registration Number.
- Loan Limit: Guarantee coverage is available for loans of up to ₹100 crore, though project costs can exceed this limit.
- Repayment Terms: Loans up to ₹50 crore come with a repayment period of up to 8 years, including a 2-year moratorium. For higher loan amounts, an extended repayment schedule and moratorium can be negotiated.
- Contribution: Borrowers must deposit an upfront contribution of 5% of the loan amount at the time of application.
- Annual Guarantee Fee: The fee is waived in the year of sanction, followed by a 1.5% annual fee for three years and 1% thereafter.
- Duration: The scheme is valid for loans sanctioned within four years of the issuance of its operational guidelines or until a cumulative guarantee of ₹7 lakh crore is reached.
Expected Impact:
The manufacturing sector, which contributes 17% to India’s GDP and employs over 27.3 million workers, is poised for a boost. The initiative aligns with the “Make in India, Make for the World” vision, targeting an increase in the sector’s share of GDP to 25%. By addressing the high fixed costs associated with plant and machinery, the scheme will foster growth in domestic manufacturing.
Background:
India’s role in global supply chains is expanding, driven by its abundant raw materials, competitive labor costs, and rising manufacturing expertise. The Mutual Credit Guarantee Scheme responds to industry demands for greater access to credit, especially for medium-sized enterprises, facilitating collateral-free loans and promoting growth through debt capital.
The scheme will be implemented through Member Lending Institutions, including Scheduled Commercial Banks, Non-Banking Financial Companies, and All-India Financial Institutions registered with the National Credit Guarantee Trustee Company Limited (NCGTC).
Source: PIB
