Launch of Mutual Credit Guarantee Scheme for MSMEs
Union Finance and Corporate Affairs Minister Smt. Nirmala Sitharaman launched the Mutual Credit Guarantee Scheme for MSMEs (MCGS – MSME) for facilitating loans up to 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 in Mumbai, earlier this week.
In her keynote address, Smt. Sitharaman stated that Government continues its post-COVID capital and asset-building strategy, with increased allocations for capital expenditure to drive infrastructure development.
During a post-budget interaction event held in Mumbai, the Finance Minister personally handed over sanction letters to the first eleven beneficiaries under the newly launched scheme, marking the operational commencement of this financial support mechanism.
The ceremonial distribution underscored the government’s commitment to implementing budget promises aimed at strengthening the MSME sector.
As per the approved framework, the National Credit Guarantee Trustee Company Limited (NCGTC) will provide 60 percent guarantee coverage to Member Lending Institutions (MLIs) for credit facilities extended to eligible MSMEs.
This guarantee specifically applies to loans sanctioned for the purchase of equipment or machinery, addressing a critical need for capital investment in the MSME sector.
The scheme incorporates several important eligibility criteria and operational parameters. To qualify, borrowers must be registered MSMEs with valid Udyam Registration Numbers, ensuring that benefits reach legitimately established enterprises.
While the guaranteed amount is capped at Rs 100 crore per borrower, the scheme allows for projects with higher total costs, providing flexibility for larger capital investments.
A key requirement stipulates that equipment or machinery must constitute at least 75 percent of the total project cost, ensuring the funds are directed toward productive assets.
The repayment structure has been designed to provide adequate time for businesses to generate returns on their investments. Loans up to Rs 50 crore can have repayment periods of up to 8 years, including a grace period of up to 2 years on principal repayments.
For larger loans exceeding Rs 50 crore, extended repayment schedules and moratorium periods may be considered, accommodating the longer gestation periods typically associated with substantial capital investments.
Applicants seeking guarantee coverage must make an upfront contribution of 5 percent of the loan amount at the time of application, ensuring their financial commitment to the project.
The annual guarantee fee structure has been designed to be progressive, with no fee charged during the year of sanction.
For the subsequent three years, a fee of 1.5 percent per annum will be applied on the outstanding loan amount as of March 31 of the previous year. After this initial period, the annual guarantee fee will be reduced to 1 percent per annum of the outstanding amount.
The scheme has been established with a defined operational window and capacity. It will remain applicable to loans sanctioned during a period of 4 years from the date of issuance of operational guidelines, or until a cumulative guarantee of Rs 7 lakh crore is issued, whichever milestone is reached earlier.
