Centre approves Mutual Credit Guarantee Scheme to Strengthen MSME; know all about the initiative

The government has approved the Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME) that would facilitate loans up to Rs 100 crore for purchase of plant and machinery/equipment for eligible firms. 

The scheme would provide 60 per cent guarantee coverage by National Credit Guarantee Trustee Company Limited (NCGTC) to member lending institutions (MLIs) for credit facility upto Rs 100 crore, sanctioned to eligible MSMEs under MCGS-MSME for purchase of equipment/machinery, according to the Ministry of Finance.

Salient Features of the Scheme:

• Borrowers must be MSMEs with a valid Udyam Registration Number.

• The guaranteed loan amount shall not exceed Rs. 100 crore, although project costs may be higher.

• The minimum cost of equipment or machinery must constitute 75% of the project cost.

• Loans up to Rs. 50 crore under the scheme will have a repayment period of up to 8 years, with a moratorium period of up to 2 years on principal installments. For loans exceeding Rs. 50 crore, a longer repayment schedule and moratorium period can be considered.

• An upfront contribution of 5% of the loan amount is required at the time of application for the guarantee cover.

• The Annual Guarantee Fee for loans under the scheme will be nil during the sanction year. For the subsequent three years, it will be 1.5% per annum of the loan outstanding as of March 31 of the previous year, followed by an annual fee of 1% per annum thereafter.

• The scheme will apply to all loans sanctioned under MCGS-MSME over four years from the date operational guidelines are issued, or until a cumulative guarantee of Rs. 7 lakh crore is reached, whichever comes first.

Major Impact:

The manufacturing sector currently contributes 17% to India’s GDP and employs over 27.3 million workers. With the Prime Minister's call for 'Make in India, Make for the World,' there is a strong emphasis on increasing the manufacturing share of GDP to 25%. The MCGS-MSME is expected to enhance access to credit for the purchase of plants and machinery, significantly boosting the manufacturing sector and supporting the Make in India initiative.

Background:

Global supply chains are undergoing realignment, and India is positioning itself as an alternative source due to its abundant raw materials, low labor costs, growing manufacturing expertise, and entrepreneurial spirit. One of the significant costs in manufacturing is the fixed cost of plant and machinery. By facilitating credit access to expand manufacturing capacity, the MCGS-MSME aims to accelerate growth in the sector. Industry associations have consistently advocated for a credit guarantee scheme tailored for medium-sized enterprises, and the introduction of the MCGS-MSME is a strategic response to this need. The scheme will enable banks and financial institutions to provide collateral-free loans to MSMEs in need of debt capital for expansion and growth.

*MLIs include all Scheduled Commercial Banks (SCBs), Non-Banking Financial Companies (NBFCs), and All India Financial Institutions (AIFIs) that register with NCGTC under the scheme.

(PIB)