Govt Approves Mutual Credit Guarantee Scheme for MSMEs Ahead of Budget 2025-26

Jan 31, 2025

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The government has introduced the Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME), offering up to ₹100 crore credit guarantee for equipment and machinery procurement. The scheme aims to facilitate collateral-free loans and boost MSME growth.

Govt Approves Mutual Credit Guarantee Scheme for MSMEs Ahead of Budget 2025-26

Two days before the presentation of the Union Budget for the next financial year 2025-26, the government on Wednesday approved the introduction of a new credit guarantee scheme for the micro, small and medium enterprises (MSMEs) that was announced in the FY25 Budget. The scheme, which is called Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME), will extend credit guarantee coverage to lending institutions for credit facilities of up to Rs 100 crore to eligible MSMEs, for the procurement of equipment and machinery, a statement by the Ministry of Finance said.

The MCGS- MSME aims at providing 60 per cent guarantee coverage by National Credit Guarantee Trustee Company Limited (NCGTC) to Member Lending Institutions (MLIs) for credit facility up to Rs 100 crore to eligible MSMEs for purchase of equipment/machinery, the Ministry said. “The scheme will facilitate collateral-free loans by banks and financial institutions to MSMEs who are in need of debt capital for their expansion and growth,” it said.

Under the scheme, the MSMEs should have a valid Udyam Registration Number; the loan amount guaranteed under the scheme will not exceed Rs 100 crore; project cost could be of higher amounts, and minimum cost of equipment/ machinery will be 75 per cent of project cost. Loan upto Rs 50 crore under the scheme will have repayment period of upto 8 years with upto 2 years moratorium period on principal installments. For loans above Rs 50 crore, higher repayment schedule and moratorium period on principal installments can be considered, it said.

An initial contribution of 5 per cent of the loan amount will need to be deposited at the time of application of guarantee cover. The Annual Guarantee Fee on loan under the scheme will be nil during the year of sanction, it said, adding, it would be 1.5 per cent per annum of loan outstanding as on March 31 of previous year for the next three years, and thereafter, annual guarantee fee shall be 1 per cent per annum of loan outstanding as on March 31 of previous year, it said.

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