Finance Minister Unveils ₹100 Crore Loan Guarantee Scheme for MSMEs

Finance Minister Nirmala Sitharaman has introduced the Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME) to facilitate collateral-free loans of up to ₹100 crore for purchasing machinery or equipment. The scheme was unveiled at a post-budget event in Mumbai, where the minister also distributed sanction letters to the first eleven beneficiaries.

Approved by the government last month, MCGS-MSME will offer 60% guarantee coverage through the National Credit Guarantee Trustee Company Limited (NCGTC) to Member Lending Institutions (MLIs). This coverage applies to loans of up to ₹100 crore granted to eligible MSMEs for machinery or equipment purchases, addressing financial constraints in the sector.

MLIs under the scheme include all Scheduled Commercial Banks (SCBs), Non-Banking Financial Companies (NBFCs), and All India Financial Institutions (AIFIs) registered with NCGTC. Eligible MSMEs must have a valid Udyam Registration Number, with guaranteed loans capped at ₹100 crore. At least 75% of the project cost must be allocated to equipment or machinery, though the total project cost can exceed this amount.

Repayment terms vary based on loan size: loans up to ₹50 crore have a maximum repayment period of eight years, including a two-year principal moratorium, while those above ₹50 crore follow a customized repayment plan. Borrowers must contribute 5% of the loan amount at the time of application. No annual guarantee fee is charged in the sanction year, but a 1.5?eapplies for the next three years, reducing to 1% annually thereafter.

The scheme will be in effect for four years from the issuance of operational guidelines or until it reaches a total guarantee of ₹7 lakh crore, whichever comes first. Expected to boost India's manufacturing sector, which currently contributes 17% to GDP and employs over 27.3 million people, MCGS-MSME aims to enhance industrial growth and financial accessibility for businesses.