Nirmala Sitharaman rolls out Mutual Credit Guarantee Scheme for MSMEs

In an effort to boost the MSME (Micro, Small and Medium Enterprises) sector, Union Finance Minister Nirmala Sitharaman has launched the Mutual Credit Guarantee Scheme (MCGS) for MSMEs. With collateral-free loans of up to ₹100 crore available, MSMEs can more easily invest in machinery and equipment to drive their growth, according to the ministry of finance.

The MSGS offers 60% guarantee coverage by the National Credit Guarantee Trustee Company Ltd (NCGTC). This means member lending institutions (MLIs) can sanction loans of up to ₹100 crore, empowering MSMEs to invest in machinery and equipment risk-free.

Key features of the scheme are: 

- Loan amount guarantee shall not go beyond ₹100 crore

- Borrower needs to be an MSME with valid Udyam Registration Number

- Project cost could be higher amounts. A minimum of 75% of the project cost must go towards purchasing equipment or machinery.

- Loans of up to ₹50 crore come with a repayment window of up to 8 years, including a 2-year moratorium on principal instalments. For loans exceeding ₹50 crore, a more flexible repayment schedule and extended moratorium period on principal instalments can be tailored to suit the needs of the borrower.

- An upfront contribution of 5% of the loan amount is required at the time of applying for the guarantee cover.

- The Annual guarantee cover is zero in the year when the loan is sanctioned. For the next three years, it will be 1.5% per year of the loan balance of March 31 of the previous year. After that, the fee will reduce to 1% per year of the outstanding loan amount as of March 31.

The scheme will be available for all loans sanctioned under MCGS-MSME for the next four years, starting from the release of operational guidelines, or until a total guarantee of ₹7 lakh crore is issued, whichever happens first.