Centre Introduces Modifications to Credit Scheme for MSMEs

The Ministry of Finance announced significant changes to the Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME) to enhance credit accessibility and boost growth in the micro, small, and medium enterprises sector. Launched in January 2025, the scheme offers a 60% guarantee coverage by the National Credit Guarantee Trustee Company Limited to member lending institutions for loans up to Rs 100 crore for the procurement of equipment and machinery.
Responding to feedback from MSMEs and lending institutions, the government has made the scheme more adaptable and comprehensive. The revised norms now include a refundable five percent upfront contribution, with a one percent annual refund starting from the fourth year based on satisfactory loan performance.
Additionally, the eligibility criteria have been broadened to encompass service sector MSMEs, while the minimum project cost requirement for machinery and equipment has been reduced to 60% from the previous 75%. The guarantee tenure has also been limited to 10 years to further streamline the process.
Special provisions have been introduced for exporters, requiring eligible units to be profitable and have exported at least 25% of their turnover in the past three financial years, meeting export realization conditions. For these exporters, the guaranteed loan amount stands at Rs 20 crore, with an upfront contribution of two percent of the loan amount, refundable over the fourth and fifth years of the guarantee period.
The government specified that guarantee coverage for exporters is set at 75% of the default amount, with no guarantee fee in the first year and a subsequent annual fee of 0.5% of the outstanding loan amount.