Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME)

The Government of India has approved the Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME) to strengthen the manufacturing sector.

About Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME)

• The scheme fulfills the 2024-25 Budget announcement and aims to boost MSME credit access for purchasing Plant & Machinery / Equipment.
• Loan Eligibility: MSMEs with a valid Udyam Registration Number are eligible.
• Maximum Loan Amount: Loans of up to ₹100 crore can be covered under the scheme.
• Project Cost: The total project cost can exceed ₹100 crore, but the minimum cost of equipment/machinery must be 75% of the project cost.
• Loan Tenure:
  • Loans up to ₹50 crore have a repayment period of up to 8 years, with a 2-year moratorium on principal installments.
  • For loans exceeding ₹50 crore, a longer repayment and moratorium period may be considered.
• Guarantee Coverage: The National Credit Guarantee Trustee Company Limited (NCGTC) will provide 60% guarantee coverage to Member Lending Institutions (MLIs).
• Upfront Contribution: Borrowers must deposit 5% of the loan amount at the time of applying for the guarantee cover.
• Annual Guarantee Fee:
  • Nil during the year of sanction.
  • 1.5% per annum on outstanding loan amounts for the next three years.
  • 1% per annum thereafter.
• Duration of the Scheme: Applicable for four years from the issuance of operational guidelines or until the cumulative guarantee reaches ₹7 lakh crore, whichever comes first.
• Eligible Member Lending Institutions (MLIs)
  • Scheduled Commercial Banks (SCBs)
  • Non-Banking Financial Companies (NBFCs)
  • All India Financial Institutions (AIFIs) registered with NCGTC under this scheme.

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Impact of the Scheme

• The manufacturing sector currently contributes 17% of India’s GDP and employs over 27.3 million workers.
• Aligns with the “Make in India, Make for the World” initiative to increase the manufacturing sector’s GDP share to 25%.
• Facilitates easier access to credit for MSMEs to purchase equipment/machinery, accelerating industrial expansion.
• Encourages collateral-free loans for MSMEs through banks and financial institutions.

Rationale behind the Scheme:

• Global supply chains are shifting, positioning India as a key alternative supply source due to its raw materials, low labor costs, and manufacturing expertise.
• One of the largest costs in manufacturing is Plant & Machinery (P&M) / Equipment. The scheme ensures that MSMEs can expand their installed capacity by securing affordable loans.
• Industry associations have consistently demanded a credit guarantee scheme for manufacturing units, particularly medium enterprises.
• The introduction of MCGS-MSME will facilitate credit availability, boost MSME growth, and strengthen India’s position in global manufacturing.

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