Finance Minister Nirmala Sitharaman officially launched the Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME) on Monday, delivering on a major policy initiative outlined in the July 2024 Budget. This landmark scheme enables loans of up to Rs 1 billion for Micro, Small, and Medium Enterprises (MSMEs) to acquire machinery and equipment without the need for collateral security. At a post-budget interaction in Mumbai, the Finance Minister personally handed over sanction letters to the first eleven beneficiaries, marking the scheme’s operational rollout. The event reaffirmed the government’s commitment to strengthening the MSME sector and ensuring access to essential capital for growth and innovation. Under the approved framework, the National Credit Guarantee Trustee Company Limited (NCGTC) will extend 60% guarantee coverage to Member Lending Institutions (MLIs) for loans sanctioned under the scheme. This initiative specifically addresses capital investment challenges faced by MSMEs, facilitating their expansion and modernisation. The scheme is open to registered MSMEs with a valid Udyam Registration Number. Each borrower can avail of loans up to Rs 1 billion, with flexibility for projects exceeding this threshold. However, at least 75% of the total project cost must be allocated towards machinery or equipment.

For repayment, loans up to Rs 500 million will have a repayment period of 8 years, including a 2-year grace period. For loans exceeding Rs 500 million, extended repayment schedules and moratorium options will be available. Borrowers must make an upfront contribution of 5% of the loan amount at the time of application.

The annual guarantee fee structure includes no fee for the sanction year, followed by a 1.5% per annum charge for the next three years, which then reduces to 1% per annum thereafter. The scheme will remain valid for four years from the issuance of operational guidelines or until the guarantee corpus reaches Rs7 trillion, whichever occurs earlier. This high-impact financial intervention is expected to catalyse technological adoption, operational efficiency, and business expansion in the MSME sector. By addressing capital constraints, the scheme empowers enterprises to enhance their competitiveness and productivity, reinforcing their role in India’s economic growth.