Credit Without Collateral: Government Supercharges MSME Growth with New Guarantee Scheme

Image Source: India Shipping News

In a major policy push to empower firstgeneration entrepreneurs and boost India’s manufacturing and export capabilities, the Government of India has launched an enhanced Credit Guarantee Scheme for Micro, Small and Medium Enterprises (MSMEs). The initiative aims to provide collateralfree loans of up to Rs 100 crore, enabling small businesses to access capital for machinery, equipment, and expansion without the burden of thirdparty guarantees.

Scheme Highlights and Structure

Loans up to Rs 100 crore are eligible for guarantee coverage under the Mutual Credit Guarantee Scheme for MSMEs (MCGSMSME)
The scheme offers 60 percent guarantee coverage to Member Lending Institutions (MLIs) through the National Credit Guarantee

Trustee Company (NCGTC)

Borrowers must be registered MSMEs with a valid Udyam Registration Number
Minimum 75 percent of the project cost must be allocated to equipment or machinery
Loans up to Rs 50 crore will have a repayment period of up to 8 years, with a 2year moratorium on principal repayment
For loans above Rs 50 crore, longer repayment and moratorium periods may be considered

Cost and Fee Structure

Borrowers must contribute 5 percent of the loan amount upfront at the time of guarantee application
No annual guarantee fee is charged in the year of sanction
A 1.5 percent annual guarantee fee applies for the next three years, followed by 1 percent annually thereafter

Strategic Impact and Economic Vision

The scheme is designed to strengthen India’s manufacturing sector, which currently contributes 17 percent to GDP and employs over 27 million workers
It aligns with the government’s Make in India and Vikshit Bharat 2047 visions by facilitating capital access for capacity expansion
MSMEs are expected to benefit from improved credit flow, enabling them to scale operations, enhance exports, and generate employment

Complementary Initiatives and Sectoral Growth

The scheme complements existing efforts under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), which has already supported over 21 lakh credit applications
MSME exports have surged from Rs 3.95 lakh crore in FY21 to Rs 12.39 lakh crore in FY25, underscoring the sector’s growing global footprint
The government is also encouraging quality enhancement, digital adoption, and market linkages to further strengthen MSME competitiveness

Outlook

With the new credit guarantee framework in place, India’s MSME ecosystem is poised for a transformative leap. By removing collateral barriers and offering structured financial support, the government is not only nurturing entrepreneurship but also laying the foundation for inclusive and sustainable economic growth.

Sources: Ministry of MSME, Press Information Bureau, IndBiz, New Indian Express, CGTMSE Guidelines, Budget 2024–25 Announcements