NEW DELHI: Government on Wednesday approved a Mutual
Credit Guarantee Scheme
aimed towards improving the credit availability for micro, small and medium manufacturing sectors, aligning with the goals set under the Make in India Union Budget 2024-25 for the
MSME sector
.
The scheme will offer 60 per cent guarantee coverage through the National Credit Guarantee Trustee Company Limited (NCGTC) to Member Lending Institutions (MLIs) for loans up to Rs 100 crore, helping eligible MSMEs finance the purchase of equipment and machinery.
This credit will enable MSME industries to purchase plant, machinery, and equipment, giving a boost to the sector and strengthening the Make in India initiative.
The finance ministry, in a press release, revealed that the manufacturing sector currently contributes 17 per cent to India’s GDP, providing jobs to more than 27.3 million workers. It further added that PM Modi’s vision of ‘Make in India, Make for the World’ aims to increase this share to 25 per cent of GDP.
Features of the scheme
The borrower should be an MSME with valid Udyam Registration Number and the loan amount guaranteed should not surpass Rs 100 crores.
Though the project cost could be higher, 75 per cent of it should be utilised for the equipment and machinery.
In case the loan amount is Rs 50 crore or less, the borrower can repay it over a maximum of 8 years. They are also granted a 2-year break at the start, during which they don’t have to pay the principal amount, only interest (this is called a moratorium period).
If the loan is above Rs 50 crore, the repayment period and moratorium period can be extended further.
Borrowers must pay 5 per cent of the loan amount upfront when applying for the guarantee cover under the scheme.
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 total guarantee of Rs 7 lakh crore is issued, whichever is earlier.
Improving India’s manufacturing industry
As global supply chains are transitioning, India is emerging as a strong alternative supplier, thanks to its abundant raw materials, low labour costs, growing industrial expertise, and entrepreneurial spirit.
However, one of the biggest expenses for manufacturers is the cost of plant and machinery and hence easy access to credit becomes crucial.
The MCGS-MSME will enable banks and financial institutions or MLIs to offer collateral-free loans to MSMEs, ensuring they have the capital needed for expansion and growth.
Member Lending Institutions (MLIs) include all Scheduled Commercial Banks (SCBs), Non-Banking Financial Companies (NBFCs), and All India Financial Institutions (AIFIs) that register with NCGTC under this scheme.
