Government Launches New Credit Guarantee Scheme to Boost MSME Growth

New Delhi, January 29, 2025 – In an exciting development for the Micro, Small, and Medium Enterprises (MSMEs) sector, the Indian government has introduced a new credit guarantee scheme aimed at providing financial support for MSMEs across the country. This move aligns with the FY25 Budget announcement and is expected to enhance the manufacturing capabilities of MSMEs.

Key Features of the New Credit Guarantee Scheme

The government’s Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME) is designed to facilitate easier access to credit for MSMEs, with a specific focus on funding the purchase of machinery and equipment. The scheme is set to cover loans up to Rs 100 crore, offering substantial financial backing to eligible MSMEs.

Highlights of the Scheme:

• Loan Coverage: Loans up to Rs 100 crore for eligible MSMEs.
• Guarantee Coverage: National Credit Guarantee Trustee Company Limited (NCGTC) will provide 60% guarantee coverage to Member Lending Institutions (MLIs) for loans.
• Eligible Borrowers: MSMEs with a valid Udyam Registration Number.
• Equipment/Machinery Purchase: Aimed at funding 75% of the project cost for purchasing machinery/equipment.

Additional Conditions for MSMEs to Qualify:

• The borrower must be registered as an MSME with a valid Udyam Registration Number.
• The project cost may exceed the Rs 100 crore loan amount but must include equipment/machinery that constitutes at least 75% of the project cost.

Also Read: TS Ration Card Application Form 2025: Online PDF Download

What does the Scheme mean for MSMEs?

This scheme is designed to help MSMEs acquire the much-needed credit to purchase plant and machinery, which is often a major financial hurdle. The introduction of MCGS-MSME will:

• Ease Access to Credit: MSMEs can avail of collateral-free loans from banks and financial institutions.
• Support Growth: It will help MSMEs expand their manufacturing capabilities and meet growing demands in the market.

Cost of Guarantee and Fees

The scheme provides a clear fee structure for borrowers:

• No Fee in the First Year: There will be no annual guarantee fee in the year the loan is sanctioned.
• 1.5% Annual Fee: For the next three years, the guarantee fee will be 1.5% per annum of the loan outstanding as of March 31 of the previous year.
• 1% Annual Fee: After the first three years, the fee reduces to 1% per annum of the loan outstanding as of March 31.

Scheme Duration and Limitations

• The scheme will remain operational for four years from the issue of its operational guidelines.
• The cumulative guarantee issued will be capped at Rs 7 lakh crore, whichever comes first.

Impact on India’s Manufacturing Sector

With the introduction of this scheme, the government aims to bolster the country’s manufacturing sector, which currently contributes around 17% to India’s GDP and employs more than 27.3 million workers.

India’s growing role in global supply chains—thanks to its vast raw materials, low labor costs, and entrepreneurial spirit—positions it as a significant alternative source for manufacturing. The government’s move to support MSMEs through the MCGS-MSME is expected to help:

• Boost Manufacturing: By easing access to capital for equipment and machinery purchases.
• Foster ‘Make in India’: The scheme is a step towards strengthening India’s manufacturing sector and contributing to the ‘Make in India’ initiative.

Also Read: TS Praja Palana Application Status 2025: How to Check Online

FAQs about the MCGS-MSME Scheme

1. Who can avail of the MCGS-MSME scheme?

• MSMEs with a valid Udyam Registration Number can apply for loans under this scheme.

2. What is the maximum loan amount covered under the scheme?

• The scheme covers loans up to Rs 100 crore.

3. Will I need to provide collateral for the loan?

• No, the scheme facilitates collateral-free loans.

4. What is the annual guarantee fee structure?

• No fee in the first year; 1.5% for the next three years, and 1% thereafter.

Conclusion

The MCGS-MSME scheme is a game-changer for MSMEs in India. By offering a robust guarantee on loans, it promises to ease financial burdens, help purchase essential machinery and equipment, and fuel the growth of the manufacturing sector. With this initiative, the government is taking significant steps towards supporting MSMEs, fostering a more self-reliant and robust economy.

Click here to learn more