Credit guarantee to Rs 20 lakh Mudra loan: FM on MSMEs in Budget 2024

Union Budget 2024-25: Finance Minister Nirmala Sitharaman announced the continuation of bank credit to micro, small, and medium enterprises (MSMEs) during stress periods

In her Union Budget 2024-25 speech, Finance Minister Nirmala Sitharaman unveiled several key measures aimed at bolstering the micro, small, and medium enterprises (MSME) sector, recognising its pivotal role in India’s economic landscape. The announcements are set to address critical challenges such as access to credit, regulatory burdens, and the need for skilling and employment generation.

Key announcements for MSMEs include:

Credit guarantee scheme for MSMEs

A credit guarantee scheme will be introduced to facilitate term loans to MSMEs. A self-financing guarantee fund will cover up to Rs 100 crore for each applicant, while the loan amount can be larger.

FM Sitharaman said, "For facilitating term loans to MSMEs, a credit guarantee scheme will be introduced. The scheme will operate on the cooling of credit risks of such MSMEs."

This scheme will help mitigate credit risks for such enterprises.

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Continuation of bank credit during stress periods

A new mechanism will be introduced to ensure the continuity of bank credit to MSMEs during their stress periods. This initiative aims to provide much-needed financial stability to MSMEs facing economic difficulties.

Expansion of SIDBI's reach

The Small Industries Development Bank of India (SIDBI) will expand its reach to MSME clusters, providing direct credit to these enterprises, thereby enhancing their financial access.

Increase in Mudra Loan limit

The limit for Mudra loans has been increased from Rs 10 lakh to Rs 20 lakh, which will facilitate greater financial support for small businesses and entrepreneurs.

E-commerce export hubs

E-commerce export hubs will be established in public-private partnership (PPP) mode to enable MSMEs and traditional artisans to sell their products in international markets.

Reduced turnover threshold for TREDS

The turnover threshold for buyers' mandatory onboarding on the trade receivables discounting system (TREDS) platform will be reduced from Rs 500 crore to Rs 250 crore, enhancing liquidity for MSMEs.

Support for multi-product food irradiation units

Financial support will be provided for 50 multi-product food irradiation units in the MSME sector, promoting food safety and export quality.

What did the Economic Survey 2023-24 say about MSMEs?

The Economic Survey 2023-24, released on Monday, highlighted the central role of the MSME sector in India’s economy, contributing 30 per cent to GDP, 45 per cent to manufacturing output, and employing 110 million people. However, the sector faces significant challenges, including extensive regulation and compliance requirements, and access to affordable and timely funding remains a primary concern.

The Survey emphasised the need for:

• Addressing the credit gap: Ensuring MSMEs have access to affordable credit.
• Deregulation: Reducing the regulatory burden to foster growth and innovation.
• Improving connectivity: Enhancing physical and digital infrastructure to support MSMEs.
• Developing an export strategy: Helping MSMEs expand into international markets.
• In the Union Budget 2023-24, the finance minister had announced the allocation of Rs 22,137.95 crore for the MSME ministry. This was a 41.6 per cent increase from the previous financial year.