Announced in July 2024 Budget, FM Sitharaman launches Mutual Credit Guarantee Scheme for MSMEs

This was announced in the July 2024 Budget by the finance minister.

The finance minister also handed over sanction letters to the first eleven beneficiaries under the scheme during a post-budget interaction event in Mumbai.

Sitharaman announced that a credit guarantee scheme will be introduced to facilitate term loans to MSMEs for the purchase of machinery and equipment without collateral or third-party guarantee.

The government had approved the introduction of the Mutual Credit Guarantee Scheme for MSMEs (MCGS- MSME) for providing 60 per cent guarantee coverage by National Credit Guarantee Trustee Company Limited (NCGTC) to Member Lending Institutions (MLIs) for credit facilities upto Rs 100 crore sanctioned to eligible MSMEs under MCGS-MSME for purchase of equipment or machinery.

Salient features of the scheme include that the borrower should be an MSME with a valid Udyam Registration Number; the loan amount guaranteed shall not exceed Rs 100 crore; project cost could be of higher amounts also; the minimum cost of equipment or machinery is 75 per cent of the project cost.

Among others are loans upto Rs 50 crore under the scheme shall have a repayment period of upto 8 years with upto 2 years moratorium period on principal instalments. For loans above Rs 50 crore, a higher repayment schedule and moratorium period on principal instalments can be considered.

An upfront (initial) contribution of 5 percent of the loan amount must be deposited at the time of applying for guarantee cover.

The annual guarantee fee on loans under the scheme shall be nil during the year of sanction. During the next three years, it shall be 1.5 per cent per annum of loan outstanding as of March 31 of the previous year. Thereafter, the Annual Guarantee Fee shall be 1 percent per annum of loan outstanding as of March 31 of the previous year.

The Scheme will be applicable to all loans sanctioned under MCGS-MSME during the period of 4 years from the date of issue of operational guidelines of the scheme or till a cumulative guarantee of Rs. 7 lakh crore is issued, whichever is earlier.

The manufacturing sector currently comprises 17 per cent of the country's GDP and over 27.3 million workers.

Prime Minister Narendra Modi has given a call for 'Make in India, Make for the World' and has signalled that India is ready and keen to increase the share of manufacturing to 25 per cent of GDP.

The Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME) is expected to facilitate the availability of credit for the purchase of Plant and Machinery / Equipment by MSMEs and give a major boost to manufacturing and thereby to Make in India. (ANI)