Finance Minister Nirmala Sitharaman.
In a move to support India’s growing Micro, Small, and Medium Enterprises (MSMEs), the government has introduced significant modifications to the Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME). These changes are in line with the vision set out in Budget 2025-26, aiming to promote the country’s manufacturing and export sectors. The revamped scheme is designed to facilitate easier access to credit for MSMEs, with a focus on exporters and manufacturers looking to purchase plant and machinery.
Key Modifications to the Scheme
Launched in January 2025, the MCGS-MSME had already provided substantial credit support to MSMEs by offering a 60% guarantee coverage on loans for equipment and machinery. However, based on extensive feedback from MSMEs and lending institutions, the government has made several strategic updates to improve the scheme’s effectiveness.
1. Upfront Contribution Revised:
The upfront contribution for loans under the scheme has been made more flexible. Starting from the fourth year, 1% of the upfront contribution will be refundable, subject to the satisfactory performance of the loan account.
2. Expanded Eligibility:
Service sector MSMEs have now been included in the scheme, broadening the reach to a larger section of small and medium enterprises across diverse sectors.
3. Reduced Machinery Cost Requirement:
The minimum cost of machinery and equipment eligible for loan coverage has been reduced from 75% to 60% of the total project cost, easing the financial burden on MSMEs looking to upgrade or expand their operations.
4. Longer Guarantee Tenure:
The guarantee coverage will now extend for up to 10 years, providing greater security for MSMEs and lenders over an extended period.
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Special Provisions for Exporter MSMEs
In an effort to strengthen India’s export sector, the government has introduced targeted provisions for exporter MSMEs under the modified scheme. These provisions aim to boost the competitiveness of India’s export-oriented businesses on the global stage.
Eligibility for Exporters:
To qualify for the scheme, exporters must be profitable units that have exported at least 25% of their sales turnover in each of the past three financial years. They must also meet specific conditions related to export realisation.
Loan Guarantee and Contribution:
Exporting MSMEs will be eligible for a maximum loan guarantee of ₹20 crore. The upfront contribution for loans to exporter MSMEs is set at 2% of the loan amount (capped at ₹40 lakh), with refunds of 1% available in the fourth and fifth years of the guarantee period.
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Increased Guarantee Coverage:
For exporter MSMEs, the guarantee coverage has been increased to 75% of the loan amount in default, providing a stronger safety net for lending institutions and encouraging them to provide more credit to these units.
Zero Guarantee Fee in First Year:
To provide further relief, the guarantee fee for the first year has been waived off. From the second year onward, a nominal fee of 0.50% will be charged on the outstanding loan amount annually.
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A Major Boost for India’s Economy
The MSME sector plays a pivotal role in India’s economic growth, contributing around 30% to the nation’s GDP, over 45% to exports, and employing more than 35 crore workers. The modifications to the MCGS-MSME scheme are expected to have a transformative impact on the sector by improving access to finance, fostering the purchase of essential machinery, and enhancing the global competitiveness of Indian MSMEs.
“These changes are in direct alignment with the government’s vision of achieving a ‘Viksit Bharat’ (Developed India) by 2047. By bolstering MSME manufacturing and export capabilities, the government is paving the way for a more resilient, sustainable, and globally competitive economy,” said a senior official from the Ministry of Finance.
The revised scheme is expected to facilitate an increase in credit availability for MSMEs, particularly those engaged in manufacturing and exporting, providing a much-needed boost to the sector’s growth trajectory.
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More Information
For more details on the modified Mutual Credit Guarantee Scheme for MSMEs, visit the official website of the National Credit Guarantee Trustee Company Limited (NCGTC).
