Two days before the presentation of the Union Budget for FY 2025-26, the government approved the launch of a new credit guarantee scheme for micro, small, and medium enterprises (MSMEs) announced in the FY25 Budget. Named the Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME), the scheme will provide credit guarantee coverage to lending institutions for loans up to Rs 100 crore to eligible MSMEs, specifically for the procurement of equipment and machinery, according to a statement from the Ministry of Finance.
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The MCGS-MSME aims to provide 60% guarantee coverage by the National Credit Guarantee Trustee Company Limited (NCGTC) to Member Lending Institutions (MLIs) for credit facilities up to Rs 100 crore to eligible MSMEs for purchasing equipment and machinery, according to the Ministry. The scheme will enable collateral-free loans from banks and financial institutions to MSMEs seeking debt capital for expansion and growth.
To qualify, MSMEs must have a valid Udyam Registration Number. The loan amount guaranteed under the scheme will not exceed Rs 100 crore, although the project cost may be higher. The minimum cost of equipment/machinery will be 75% of the project cost. For loans up to Rs 50 crore, the repayment period can be up to 8 years, with a moratorium of up to 2 years on principal installments. For loans above Rs 50 crore, extended repayment schedules and moratorium periods on principal installments may be considered.
An initial contribution of 5% of the loan amount must be deposited at the time of applying for the guarantee cover. The Annual Guarantee Fee for loans under the scheme will be waived during the year of sanction. For the next three years, the fee will be 1.5% per annum of the loan outstanding as of March 31 of the previous year. After that, the annual guarantee fee will be 1% per annum of the loan outstanding as of March 31 of the previous year.

The scheme will apply to all loans sanctioned under MCGS-MSME for a period of four years from the date the operational guidelines are issued, or until a cumulative guarantee of Rs 7 lakh crore is issued, whichever comes first.
The scheme is expected to enhance access to credit for the purchase of plant and machinery/equipment by MSMEs, providing a “major boost to manufacturing and the ‘Make in India’ initiative,” the Ministry said.
As global supply chains realign, India is emerging as an alternative supply source, thanks to its raw materials, low labor costs, expanding manufacturing expertise, and entrepreneurial spirit. The Ministry highlighted that one of the major costs in manufacturing is the fixed cost of plant and machinery (P&M)/equipment. “With access to credit to expand the installed capacity of manufacturing units, it is expected that manufacturing will grow at a faster pace,” it added.
Source: The Indian Express
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