Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME)

19 Feb 2025

Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME)

The Union Government launched the ‘Mutual Credit Guarantee Scheme for MSMEs’ (MCGS-MSME), as announced in the Union Budget 2025-26, to support Micro, Small, and Medium Enterprises (MSMEs).

About MCGS-MSME

  • The Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME) is designed to provide financial support to MSMEs through collateral-free term loans for expanding production capacity and upgrading technology.
  • Objective : To enhance credit access for MSMEs, allowing them to modernize, expand operations, and compete globally.
  • MSMEs that are not classified as Non-Performing Assets (NPA) with any lender.
    • At least 75% of the project cost must be allocated for purchasing machinery or equipment.

Salient Features of MCGS-MSME

  • Loan Facilitation: The scheme provides collateral-free loans up to ₹100 crore to MSMEs.
    • While the guaranteed loan amount cannot exceed ₹100 crore, the total project cost may be higher.
  • Target Beneficiaries: Only MSMEs with valid Udyam Registration.
  • Mutual Credit Guarantee Fund-MSME (MCGF-MSME)

National Credit Guarantee Trustee Company Ltd (NCGTC)

  • Introduction: NCGTC is a trustee company established to manage and operate multiple credit guarantee trust funds, enhancing credit access for various sectors.
  • Establishment : Incorporated on March 28, 2014, under the Indian Companies Act, 1956, with a paid-up capital of ₹10 crore.
  • Location: Mumbai, Maharashtra.
  • Function : Operates as a common trustee company for credit guarantee schemes, supporting MSMEs, startups, and other sectors under the Department of Financial Services, Ministry of Finance.

    • A dedicated fund named Mutual Credit Guarantee Fund-MSME (MCGF-MSME) has been created to manage the scheme.
    • It was formed by the Department of Financial Services (DFS), Ministry of Finance.
    • The fund is managed by the National Credit Guarantee Trustee Company Limited (NCGTC), a wholly owned company of DFS.
  • Guarantee Coverage: NCGTC provides 60% guarantee coverage to Member Lending Institutions (MLIs) for loans sanctioned under MCGS-MSME.
    • This reduces lending risks and encourages financial institutions to extend loans to MSMEs.
  • Member Lending Institutions (MLIs): Financial institutions such as Commercial Banks, Non-Banking Financial Companies (NBFCs), and other registered lenders are eligible to participate as MLIs under the scheme.
  • Scheme Duration: The scheme is available for four years or until ₹7 lakh crore worth of guarantees have been issued, whichever comes first.

About MSME

New Definition of MSME as per Union Budget 2025-26

Category Investment Limit (₹ in Crore) Turnover Limit (₹ in Crore)
Micro Enterprises Current: 1 → Revised: 2.5 Current: 5 → Revised: 10
Small Enterprises Current: 10 → Revised: 25 Current: 50 → Revised: 100
Medium Enterprises Current: 50 → Revised: 125 Current: 250 → Revised: 500

Significance of MSMEs in the Indian Economy

  • Overall Contribution to GDP: MSMEs contribute approximately 30% of India’s GDP, playing a vital role in economic growth.
  • Contribution to Employment: MSMEs are one of the largest employment generators in India, providing over 11 crore jobs across various industries. 
    • They offer diverse employment opportunities, particularly in rural and semi-urban areas.
  • Export Performance: MSMEs contribute around 45% of India’s total exports, making them a critical component of global trade. 
  • Support for ‘Make in India’ and By strengthening domestic manufacturing, the MSME sector helps in realising the goal under ‘Make in India’ initiative.
  • Global Competitiveness: Enhanced credit access under MCGS-MSME allows MSMEs to scale operations, making India a key player in the global supply chain.

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UDAAN PRELIMS WALLAH
Comprehensive coverage with a concise format
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Designed as per recent trends of Prelims questions
हिंदी में भी उपलब्ध

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