Context:

The Government of India has introduced the Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME) to provide financial support to micro, small, and medium enterprises (MSMEs).

Announced in the Union Budget for FY 2024-25, the scheme aims to facilitate collateral-free loans for MSMEs to expand their operations, particularly through the procurement of equipment and machinery.

Key Features of the Scheme:

The primary goal of the scheme is to enhance credit availability for MSMEs, enabling them to expand their manufacturing capabilities and contribute to the Make in India initiative. By reducing the dependence on collateral, the scheme seeks to empower MSMEs with easier access to debt capital.

1.   Eligibility:

o    MSMEs must have a valid Udyam Registration Number to be eligible for the scheme.

2.   Loan Amount:

o    The scheme guarantees loans of up to Rs. 100 crore (Project costs may exceed this amount).

3.   Equipment/Machinery Cost:

o    At least 75% of the project cost must be spent on equipment and machinery.

4.   Repayment Period:

o    Loans up to Rs. 50 crore: Up to 8 years, with a 2-year moratorium on principal installments.

o    Loans above Rs. 50 crore: The repayment schedule may be longer with an extended moratorium period.

5.   Upfront Contribution:

o    Borrowers need to deposit 5% of the loan amount at the time of guarantee application.

6.   Annual Guarantee Fee:

o    Nil in the first year of sanction.

o    1.5% p.a. for the next 3 years (on loan outstanding as of March 31 of the previous year).

o    1% p.a. thereafter.

7.   Scheme Duration:

o    The scheme will apply to all loans sanctioned under MCGS-MSME for 4 years from the issuance of operational guidelines or until a cumulative guarantee of Rs. 7 lakh crore is reached, whichever comes first.

Expected Benefits

• Enhances access to credit for MSMEs, reducing financial barriers to expansion.
• Strengthens manufacturing capacity by increasing investment in plant and machinery.
• Supports India's emergence as a global supply chain hub by boosting production efficiency.
• Promotes economic growth by fostering entrepreneurship and employment generation.

Conclusion

The Mutual Credit Guarantee Scheme for MSMEs is a strategic intervention aimed at strengthening the MSME sector. By enabling collateral-free credit access, the scheme is expected to accelerate industrial expansion, boost manufacturing, and enhance India's competitiveness in the global market.