Finance Ministry Launches Mutual Credit Guarantee Scheme to provide Collateral Free Loans up to Rs.100 Crore for MSMEs

Union Finance and Corporate Affairs Minister Smt. Nirmala Sitharaman launched the Mutual Credit Guarantee Scheme for MSMEs (MCGS – MSME) for facilitating loans upto Rs.100 crore to MSMEs for purchase of machinery or equipment without collateral, in pursuance of the Union Budget 2024-25 announcement, at the post-budget stakeholders’ interaction.

The scheme was officially launched at a Post-Budget Interaction Event in Mumbai, when the Finance Minister also presented sanction letters to the scheme’s first eleven  beneficiaries.

The National Credit Guarantee Trustee Company Limited (NCGTC) would offer Member Lending Institutions (MLIs) with 60% guarantee coverage under the MCGS-MSME scheme, which was approved by the government last month. This coverage covers loans up to Rs.100 crore for qualifying MSMEs to purchase machinery or equipment, addressing financing challenges within the industry.

The MLIs include all Scheduled Commercial Banks (SCBs), Non-Banking Financial Companies (NBFCs), and All India Financial Institutions (AIFIs) that have registered with NCGTC under the Scheme.

The scheme allows MSMEs with a valid Udyam Registration Number to apply for loan guarantees up to Rs.100 crore. The cost of equipment or machinery acquired should account for at least 75% of the project cost, while the total cost may surpass this amount.

Loans up to Rs.50 crore have a payback tenure of up to 8 years, with a two-year moratorium on principal repayments. Loans over Rs.50 crore would require a customized repayment setup.

To qualify for the guarantee cover, borrowers must make an initial contribution of 5% of the loan amount at the time of application. Furthermore, the scheme will not impose an annual guarantee fee during the year of sanction. For the next three years, the yearly guarantee cost will be 1.5% of the loan balance as of March 31 of the previous year. Afterward, the cost will be decreased to 1% per year of the outstanding loan amount.

The scheme will be in effect for four years from the date of the release of its operational guidelines, or until a cumulative guarantee of Rs.7 lakh crore is provided, whichever occurs first.

This Scheme for MSMEs (MCGS-MSME) will have a favourable impact on India’s manufacturing sector, which now contributes 17% of the country’s GDP and employs over 27.3 million workers.