Mutual Credit Guarantee Scheme Enhances Financial Support for MSMEs

Why in the news?

The government introduced the Mutual Credit Guarantee Scheme to provide loan guarantees up to ₹100 crore for MSMEs, supporting equipment purchases and fostering growth, technological advancement, and industrial development in small and medium businesses.

Mutual Credit Guarantee Scheme Enhances Financial Support for MSMEs

About Mutual Credit Guarantee Scheme (MCGS-MSMEs):

  • The Mutual Credit Guarantee Scheme (MCGS-MSMEs) is a newly launched initiative by the central government.
  • The scheme supports Micro, Small, and Medium Enterprises (MSMEs) by offering loan guarantees up to ₹100 crore with 60% coverage through the National Credit Guarantee Trustee Company Limited (NCGTC).
  • It aims to enhance MSME growth by facilitating equipment and machinery purchases, fostering industrial and technological development.

Key Features of the Scheme

  • Eligibility: Available to MSMEs with a valid Udyam Registration Number.
  • Loan Guarantee Limit:
    • Coverage of loans up to ₹100 crore.
    • Minimum 75% allocation of the loan for equipment or machinery purchases.
  • Repayment Terms:
    • Loans up to ₹50 crore:
      • 8-year repayment tenure with a 2-year principal moratorium.
    • Loans above ₹50 crore:
      • Longer repayment and moratorium periods may be provided.

Benefits and Expected Outcomes

  • Enhances access to finance for MSMEs.
  • Supports technological advancement by encouraging investment in equipment.
  • Strengthens the industrial landscape through improved manufacturing capacity.
  • Facilitates business expansion and contributes to economic growth.

Steps to Ease Credit Access for MSMEs:

  • Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE): Collateral-free loans up to ₹2 crore with 85% guarantee coverage.
  • Raising and Accelerating MSME Performance (RAMP) Program: ₹6,000 crore investment to enhance MSME growth over 5 years.
  • Trade Receivables Discounting System (TReDS): Online platform for faster payments to improve cash flow.
  • Emergency Credit Line Guarantee Scheme (ECLGS): ₹3 lakh crore relief package with 100% government-backed loans.
  • Priority Sector Lending (PSL) Norms: Banks must allocate loans specifically for MSMEs.

Sources Referred:

PIB, The Hindu, Indian Express, Hindustan Times