Govt approves Mutual Credit Guarantee scheme to strengthen MSME sector

Mutual Credit Guarantee scheme will provide 60% guarantee coverage for loans up to Rs 100 crore

The Centre on Wednesday approved the Mutual Credit Guarantee Scheme to give a fillip to manufacturing by micro, small & medium enterprises (MSMEs), fulfilling a promise made in the previous budget and just days ahead of Union Budget 2025.

 

This initiative aims to strengthen the manufacturing sector by providing 60 per cent guarantee coverage for loans up to Rs 100 crore, specifically for the purchase of plant and machinery or equipment.

 

According to an official statement, under this scheme, eligible MSMEs with a valid Udyam Registration Number can avail substantial credit support to enhance their operational capabilities.

 

Key features of the scheme include a loan guarantee up to Rs 100 crore, with a minimum of 75 per cent of the project cost allocated for equipment or machinery. For loans up to Rs 50 crore, a repayment period of up to eight years is allowed, with a moratorium on principal payments for up to two years.

 

Larger loans may have extended repayment schedules and moratorium periods. An upfront contribution of 5 per cent of the loan amount is required at the time of the guarantee application, while the annual guarantee fee is waived during the first year and set at 1.5 per cent per annum for the subsequent three years. After this period, it will reduce to 1 per cent per annum.

 

“The scheme is anticipated to have a significant impact on the manufacturing sector, which currently contributes 17 per cent to the nation’s GDP and employs over 27.3 million workers. Aligning with the Prime Minister’s vision of ‘Make in India, Make for the World,’ the MCGS-MSME is designed to facilitate access to credit, thereby promoting growth in the manufacturing sector and increasing its share of GDP to 25 per cent,” said a statement issued by the finance ministry.

 

As global supply chains shift, India stands out as a viable alternative for manufacturing to its rich resources, competitive labour costs, and increasing manufacturing expertise.

 

“This new credit guarantee scheme addresses the industry’s long-standing need for collateral-free loans, enabling MSMEs to expand their capacities and drive economic growth. The MCGS-MSME will be operational for four years or until a cumulative guarantee of Rs 7 lakh crore is issued, whichever comes first,” said the statement.