New Credit Scheme to Boost MSME Manufacturing

The Indian government has recently approved a new Mutual Credit Guarantee Scheme (MCGS) aimed at enhancing credit availability for the micro, small, and medium enterprises (MSME) sector. This initiative aligns with the objectives outlined in the Union Budget 2024-25, particularly the “Make in India” campaign. The scheme is designed to provide significant financial support to MSMEs, enabling them to invest in essential equipment and machinery. This move is expected to strengthen the manufacturing sector, which plays a vital role in India’s economy.
Understanding the Mutual Credit Guarantee Scheme
The Mutual Credit Guarantee Scheme offers a guarantee coverage of 60% through the National Credit Guarantee Trustee Company Limited (NCGTC). This coverage is available to Member Lending Institutions (MLIs) for loans up to โน100 crore. The scheme specifically targets MSMEs, allowing them to finance the purchase of necessary equipment and machinery. By facilitating access to credit, the government aims to empower these businesses to expand their operations and contribute more significantly to the economy.
Currently, the manufacturing sector contributes approximately 17% to Indiaโs GDP and employs over 27.3 million workers. The governmentโs vision, as articulated by Prime Minister Modi, is to increase this contribution to 25% of GDP. The MCGS-MSME is a crucial step towards achieving this goal. By providing easier access to credit, the scheme will help MSMEs invest in their growth and enhance their competitiveness in both domestic and global markets.
Key Features of the Scheme
To qualify for the MCGS-MSME, borrowers must be registered MSMEs with a valid Udyam Registration Number. The maximum loan amount guaranteed under the scheme is โน100 crore. While the total project cost may exceed this amount, at least 75% of the funds must be allocated for purchasing equipment and machinery.
For loans of โน50 crore or less, borrowers can enjoy a repayment period of up to eight years, including a two-year moratorium during which only interest payments are required. This moratorium allows businesses to stabilize before they start repaying the principal amount. For loans exceeding โน50 crore, both the repayment and moratorium periods can be extended further, providing additional flexibility for borrowers.
Additionally, borrowers are required to pay 5% of the loan amount upfront when applying for the guarantee cover. The scheme will be applicable for four years from the issuance of operational guidelines or until a total guarantee of โน7 lakh crore is issued, whichever comes first.
Strengthening India’s Manufacturing Sector
India is positioning itself as a viable alternative in global supply chains, thanks to its abundant raw materials, competitive labor costs, and growing industrial expertise. However, one of the significant challenges for manufacturers is the high cost of acquiring plant and machinery. The MCGS-MSME addresses this issue by enabling banks and financial institutions to offer collateral-free loans to MSMEs.
This initiative is crucial for ensuring that MSMEs have the necessary capital to expand and innovate. Member Lending Institutions (MLIs) include all Scheduled Commercial Banks (SCBs), Non-Banking Financial Companies (NBFCs), and All India Financial Institutions (AIFIs) that register with NCGTC under this scheme. By facilitating easier access to credit, the government aims to foster a more robust manufacturing ecosystem that can compete on a global scale.
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