Government Amends Mutual Credit Guarantee Scheme to Strengthen MSME Manufacturing and Export Capabilities
In a strategic move to bolster the micro, small, and medium enterprise sector, the Central Government has announced significant modifications to the Mutual Credit Guarantee Scheme for MSMEs. These changes, aligned with the roadmap outlined in Budget 2025-26, aim to enhance credit availability for purchasing plants and machinery, thereby supporting manufacturing and export activities.
Key Adjustments to Improve Credit Accessibility
According to a statement from the Ministry of Finance, the amendments address feedback from MSMEs and lending institutions to make the credit facility more accessible and responsive to industry needs. One of the notable changes is the expansion of the scheme to include MSMEs operating in the service sector, broadening its impact beyond traditional manufacturing units.
The government has reduced the minimum project cost allocated toward machinery and equipment to 60 per cent of the total project cost, down from the previous requirement of 75 per cent. This adjustment provides businesses with greater flexibility in funding their expansion projects, allowing for more diverse capital allocation strategies.
Enhanced Financial Terms and Long-Term Support
To ensure sustained assistance, the guarantee tenure has been fixed to expire after ten years, offering long-term stability for equipment financing. Additionally, financial terms have been revised to improve liquidity for borrowers. The 5 per cent upfront contribution is now refundable, with 1 per cent returned annually starting from the fourth year of the loan, contingent upon satisfactory loan account performance. This measure incentivizes fiscal discipline while alleviating long-term financial burdens on small business owners.
Special Provisions for Export Sector Competitiveness
In a bid to encourage global competitiveness, special provisions have been introduced for the export sector. Eligible units must be profitable and have exported at least 25 per cent of their sales turnover in each of the previous three financial years. For these entities, the guaranteed loan amount is set at Rs 20 crore, with guarantee coverage extending to 75 per cent of the amount in default.
The ministry confirmed that while the first-year guarantee fee for exporters is waived, a fee of 0.50 per cent on the outstanding loan amount applies in subsequent years. The upfront contribution for exporters is fixed at 2 per cent of the loan amount, capped at a maximum of Rs 40 lakh. Similar to general MSME terms, this contribution is refundable at a rate of 1 per cent each in the fourth and fifth years of the guarantee period.
Driving Economic Growth and Viksit Bharat Vision
The Ministry of Finance emphasized the critical role of MSMEs in the Indian economy, noting that they contribute approximately 30 per cent to the GDP and over 45 per cent to exports, while employing more than 35 crore workers. Achieving the vision of Viksit Bharat 2047 requires strong, globally competitive, and sustainable MSMEs. The modifications to the MCGS-MSME scheme are expected to facilitate increased credit availability for purchasing plant and machinery or equipment by MSMEs, including exporter MSMEs, providing a major boost to the manufacturing and export sectors in India.
These amendments reflect the government's commitment to fostering a robust economic environment, ensuring that MSMEs have the necessary financial support to thrive and contribute significantly to national development goals.
