Big Update for MSMEs: Finance Ministry Launches Collateral Free Loans up to ₹100 Crore for Equipment Purchase

The Finance Minister Nirmala Sitharaman has launched the Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME), intending to support collateral-free loans up to ₹100 crore for the purchase of machinery or equipment during the post-budget event.

The scheme was launched during a Post-Budget interaction event in Mumbai, where the Finance Minister also handed over sanction letters to the first eleven beneficiaries under the scheme.

The introduction of MCGS-MSME, which was approved by the government last month, will provide a 60% guarantee coverage by the National Credit Guarantee Trustee Company Limited (NCGTC) to Member Lending Institutions (MLIs). This coverage will apply to loans up to ₹100 crore sanctioned to eligible MSMEs for the purchase of machinery or equipment, helping to assist the financing challenges faced by businesses in this sector.

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The MLIs include all Scheduled Commercial Banks ( SCBs ), Non-Banking Financial Companies (NBFCs) and All India Financial institutions ( AIFIs ), who register with NCGTC under the Scheme.

Some of the key features of the scheme include eligibility for MSMEs with a valid Udyam Registration Number, with loan guarantees not exceeding ₹100 crore. The cost of equipment or machinery purchased should account for at least 75% of the project cost, though the overall project cost may exceed this amount.

Loans up to ₹50 crore will have a repayment period of up to 8 years, including a two-year moratorium on principal repayments. Loans exceeding ₹50 crore will be subject to a customized repayment schedule.

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To avail of the guarantee cover, borrowers will need to make an initial contribution of 5% of the loan amount at the time of application. Additionally, the scheme will not charge an annual guarantee fee during the year of sanction. For the following three years, the annual guarantee fee will be 1.5% per annum of the loan outstanding as of March 31 of the previous year. Afterward, the fee will be reduced to 1% per annum of the outstanding loan amount.

This scheme will remain in effect for a period of four years from the issue of operational guidelines, or until a cumulative guarantee of ₹7 lakh crore is issued, whichever comes first.

This Scheme for MSMEs (MCGS-MSME) will impact on India’s manufacturing sector in a positive way, which currently contributes 17% to the nation’s GDP and employs over 27.3 million workers.

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