On January 29, 2025, the Government of India (GoI) approved the introduction of the Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME), fulfilling the commitment made in the 2024-25 Union Budget. This scheme aims to provide a major boost to the manufacturing sector by facilitating credit access for Micro, Small, and Medium Enterprises (MSMEs) for the purchase of plant and machinery. It also aligns with the government’s vision to increase the contribution of the manufacturing sector to the nation’s GDP and bolster India’s manufacturing prowess.

 

Objective: Boosting MSME Growth with Enhanced Credit Access

 

The MCGS-MSME is designed to provide a 60% credit guarantee cover to Member Lending Institutions (MLIs) for loans of up to Rs. 100 crore, which will be used specifically for purchasing plant and machinery. This credit guarantee will make it easier for MSMEs to access funds for their expansion, thereby enhancing their manufacturing capacity and accelerating growth.

 

Scheme Details: Key Features and Eligibility Criteria

 

The MCGS-MSME scheme includes several important features that will directly benefit MSMEs:

• Eligibility: The borrower must be a valid MSME with an active Udyam Registration Number.

• Loan Amount: The maximum loan amount guaranteed under the scheme is Rs. 100 crore.

• Project Cost: The project cost can exceed Rs. 100 crore, but at least 75% of the total project cost should be allocated for purchasing plant and machinery.

• Repayment Terms: Loans up to Rs. 50 crore will have a repayment period of up to 8 years, with a two-year moratorium on principal repayment. Loans above Rs. 50 crore may have extended repayment terms and moratorium periods.

• Initial Contribution: Borrowers will need to pay an upfront contribution of 5% of the loan amount at the time of application.

• Guarantee Fee: No annual guarantee fee will be charged during the year of sanction. For the next three years, the annual guarantee fee will be 1.5% of the loan outstanding as on March 31 of the previous year. After three years, this fee will reduce to 1% annually.

 

Scheme Duration and Impact

 

The scheme will be applicable for all loans sanctioned under MCGS-MSME for the next four years or until a cumulative guarantee of Rs. 7 lakh crore is issued, whichever comes first.

 

The MCGS-MSME is expected to have a significant impact on India’s manufacturing sector, which currently contributes 17% to the national GDP and employs over 27.3 million workers. The government’s aim to elevate the manufacturing sector’s share of GDP to 25% aligns with the objectives of the scheme. By providing credit access for the purchase of plant and machinery, MSMEs can increase their capacity, thus contributing to India’s ambition to become a global manufacturing hub.

 

Enhancing India’s Global Manufacturing Competitiveness

 

India is poised to become a key player in global supply chains, with its competitive advantages such as abundant raw materials, low labor costs, and a growing manufacturing skill base. One of the major barriers to expanding manufacturing capacity in India has been the high fixed costs associated with acquiring plant and machinery. Through the MCGS-MSME, the GoI aims to address this challenge by facilitating easy and collateral-free loans to MSMEs, enabling them to expand their manufacturing units and scale up operations.