Govt unveils new Mutual Credit Guarantee Scheme to support MSME growth

The Centre has approved the introduction of the Mutual Credit Guarantee Scheme for MSMEs (MCGS—MSME), which provides 60 per cent guarantee coverage by National Credit Guarantee Trustee Company Limited (NCGTC) to Member Lending Institutions (MLIs) for credit facilities up to ₹100 crore sanctioned to eligible MSMEs. This fulfils the budget announcement of 2024-25.

MCGS-MSME is expected to facilitate the availability of credit for the purchase of Plant and Machinery/Equipment by MSMEs, giving a major boost to manufacturing and thereby to Make in India. MLIs include All Scheduled Commercial Banks (SCBs), Non-Banking Financial Companies (NBFCs) and All India Financial institutions (AIFIs) that register with NCGTC under the scheme. 

Borrower should be an MSME with a valid Udyam Registration Number. The loan amount guaranteed shall not exceed ₹100 crore. Project costs could be higher. The minimum cost of equipment /machinery is 75 per cent of the project cost. Loans up ₹50 crore under the scheme shall have a repayment period of up to 8 years with a moratorium period of up to 2 years on principal instalments. 

For loans above ₹50 crore, a higher repayment schedule and moratorium period on principal instalments can be considered. An upfront (initial) contribution of 5 per cent of the loan amount shall be deposited at the time of application for guarantee coverage; the annual guarantee fee on the loan under the scheme shall be Nil during the year of sanction. During the next 3 years, it shall be 1.5 per cent per annum of loan outstanding as of March 31 of the previous year. Thereafter, the Annual Guarantee Fee shall be 1 per cent p.a. of the loan outstanding as on March 31 of the previous year.

The scheme will be applicable to all loans sanctioned under MCGS-MSME during the period of 4 years from the date of issue of operational guidelines of the scheme or till a cumulative guarantee of ₹7 lakh crore is issued, whichever is earlier.