India’s Government has introduced key modifications to the Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME), aimed at improving credit access for manufacturers and exporters, according to a statement by the Ministry of Finance on Saturday, 21 March.
Originally launched in January 2025, the scheme provides 60 per cent guarantee coverage by National Credit Guarantee Trustee Company Limited (NCGTC) to Member Lending Institutions (MLIs) for credit facility upto ₹100 crore sanctioned to eligible Micro, Small and Medium Enterprises (MSMEs) under MCGS-MSME for purchase of equipment or machinery.
The modifications have been introduced following feedback from MSMEs and lending institutions, with the objective of reducing compliance burdens and widening access to credit.
One of the major changes includes making the 5 per cent upfront contribution refundable in instalments of 1 per cent each from the fourth year onwards, subject to satisfactory performance of loan account.
The scheme’s eligibility has also been expanded to include service sector MSMEs, marking a significant broadening of its scope.
In addition, the minimum project cost requirement towards machinery or equipment has been reduced to 60% from the earlier 75%, making it easier for businesses to qualify.
Further, the guarantee tenure will expire after 10 years.
Special provisions for exporters
The government has also incorporated special provisions in the scheme for exporters, including:
- Eligible exporters: Profitable units having exported at least 25% of their sales turnover in each of previous 3 financial years and satisfying certain export realisation conditions.
- Guaranteed Loan Amount: ₹20 crore.
- Upfront Contribution: 2% of loan amount (Max ₹40 Lacs); 1% each refundable in 4th and 5th year of the guarantee period.
- Guarantee Coverage: 75% of the amount in default.
- Guarantee Fee: First year: Nil; Thereafter, every year: 0.50% of loan outstanding.
MSMEs play a critical role in the Indian economy, contributing around 30% to GDP, over 45% to exports, and providing employment to more than 35 crore people.
The ministry stated that the modifications in MCGS-MSME scheme are expected to facilitate increased availability of credit for purchase of Plant and machinery and equipment by MSMEs, including exporter MSMEs, and give a major boost to manufacturing and export sector in India.
