Credit Guarantee Scheme for MSMEs

• The Government of India has introduced the Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME), aiming to ease credit constraints and propel growth in the manufacturing sector.

About:

• The Micro, Small, and Medium Enterprise (MSME) sector forms the backbone of the Indian economy, contributing significantly to employment, innovation, and economic growth. 
• Within the MSME landscape, the manufacturing sector plays a crucial role, accounting & providing jobs to 27.3 million workers.
• However, access to finance remains a major hurdle for MSME manufacturers, hindering their ability to modernize, expand, and compete effectively.

Key Features of MCGS-MSME:

• Guarantee Coverage: The scheme offers 60% guarantee coverage to Member Lending Institutions (MLIs) on loans up to ₹100 crores sanctioned to eligible MSMEs for the purchase of plant and machinery.
• Eligibility:  MSMEs with a valid Udyam Registration Number.
• Loan Amount and Usage: A minimum of 75% of the project cost must be utilized for the acquisition of equipment and machinery, directly supporting manufacturing capacity expansion.
• Repayment Terms (Up to ₹50 crores) Maximum 8-year repayment, with a 2-year principal moratorium.
  • Above ₹50 crore: Longer repayment and moratorium periods may be considered.
• Guarantee Fees: No guarantee fee is charged in the first year. For the subsequent three years, the fee is 1.5% per annum of the outstanding loan amount as of March 31st of the previous year.
• Scheme Duration: The MCGS-MSME will be in effect for four years from the date of the issuance of operational guidelines or until cumulative guarantees of ₹7 lakh crores are issued, whichever comes earlier.
• Participating Lenders: All Scheduled Commercial Banks (SCBs), NBFCs registered with the National Credit Guarantee Trustee Company Limited (NCGTC).

Impact on MSME & Manufacturing

• Supports ‘Make in India & Make for the World’ by increasing manufacturing output.
• Helps MSMEs scale up with easier access to large credit for expansion.
• Strengthens India’s position as a global alternative in supply chains.
• Aims to increase manufacturing’s share in GDP from 17% to 25%.
• Expanded MSMEs generate more employment opportunities.

Other Key MSME Financial Support Schemes in India

• CGTMSE (Credit Guarantee Fund Trust for MSEs): Offers collateral-free loans up to ₹2 crores. Provides up to 85% guarantee coverage to reduce lender risk.
• TReDS (Trade Receivables Discounting System): Online platform for MSMEs to get payments faster from large companies.
• Emergency Credit Line Guarantee Scheme (ECLGS): ₹3 lakh crores relief package during COVID-19. 100% Government-backed guarantee for loans.
• RBI Measures to Boost MSME Lending: Priority Sector Lending (PSL): Banks mandated to allocate a portion of their loans to MSMEs.
  • Restructuring of MSME Loans: RBI allowed one-time loan restructuring for stressed MSMEs to prevent defaults.

Source : https://www.nextias.com/ca/current-affairs/30-01-2025/msmes-credit-guarantee-scheme