In a major step to support Micro, Small, and Medium Enterprises (MSMEs), the Government of India (GoI) has approved the introduction of the Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME). Under this scheme, the National Credit Guarantee Trustee Company Limited (NCGTC) will provide a 60% guarantee coverage to Member Lending Institutions (MLIs) for loans up to Rs. 100 crore sanctioned to eligible MSMEs. These loans will be used for purchasing equipment or machinery, helping MSMEs expand their operations and contribute to the growth of the manufacturing sector.
Key Features of the Scheme: MCGS MSME Scheme Rs.100 Crore Fund
Eligibility:
- The borrower must be an MSME with a valid Udyam Registration Number.
- The loan amount guaranteed under the scheme will not exceed Rs. 100 crore.
- The project cost can be higher than the loan amount, but the cost of equipment or machinery must be at least 75% of the total project cost.
Loan Repayment:
- For loans up to Rs. 50 crore, the repayment period will be up to 8 years, with a moratorium (pause) of up to 2 years on principal repayments.
- For loans above Rs. 50 crore, a longer repayment schedule and moratorium period can be considered.
Guarantee Fee:
- No upfront guarantee fee will be charged during the year of loan sanction.
- For the next 3 years, the annual guarantee fee will be 1.5% of the outstanding loan amount as of March 31 of the previous year.
- After 3 years, the annual guarantee fee will be reduced to 1% of the outstanding loan amount.
Upfront Contribution:
- Borrowers will need to deposit 5% of the loan amount as an upfront contribution when applying for the guarantee cover.
Scheme Duration:
- The scheme will be applicable for 4 years from the date of its operational guidelines or until a cumulative guarantee of Rs. 7 lakh crore is issued, whichever comes first.
Major Impact: Rs.100 crore MCGS MSME Scheme Fund
The manufacturing sector currently contributes 17% to India’s GDP and employs over 27.3 million workers. Prime Minister Narendra Modi’s vision of “Make in India, Make for the World” aims to increase the share of manufacturing in India’s GDP to 25%. The MCGS-MSME scheme is expected to play a crucial role in achieving this goal by making credit more accessible for MSMEs to purchase plant and machinery. This will not only boost the manufacturing sector but also strengthen India’s position as a global manufacturing hub.
Background
With global supply chains undergoing realignment, India is emerging as a preferred alternative due to its abundant raw materials, low labor costs, growing manufacturing expertise, and entrepreneurial talent. One of the biggest challenges for MSMEs in the manufacturing sector is the high fixed cost of plant and machinery. The MCGS-MSME scheme addresses this challenge by providing collateral-free loans, enabling MSMEs to expand their production capacity and grow their businesses.
Industry associations have long advocated for a credit guarantee scheme tailored to the needs of medium-sized enterprises. The MCGS-MSME scheme is a response to this demand, offering a much-needed financial boost to MSMEs. By facilitating easier access to credit, the scheme aims to accelerate the growth of the manufacturing sector and support India’s economic development.
Who Can Participate?
Member Lending Institutions (MLIs) include all Scheduled Commercial Banks (SCBs), Non-Banking Financial Companies (NBFCs), and All India Financial Institutions (AIFIs) that register with the NCGTC under the scheme. These institutions will play a key role in providing loans to MSMEs under the MCGS-MSME scheme.
This initiative is expected to empower MSMEs, create jobs, and strengthen India’s manufacturing capabilities, aligning with the government’s vision of a self-reliant India.