Government Introduces Credit Guarantee Scheme for MSMEs with Loans Up to ₹100 Crore
The Indian government has unveiled a new credit guarantee scheme designed to provide collateral-free loans up to ₹100 crore to Micro, Small, and Medium Enterprises (MSMEs). This initiative aims to facilitate capital investment in the manufacturing sector, enabling MSMEs to acquire machinery and equipment without the need for collateral or third-party guarantees.
Key Features of the Scheme
Collateral-Free Loans: MSMEs can access term loans up to ₹100 crore without providing collateral or third-party guarantees, easing the financial burden on small and medium enterprises.
Credit Risk Pooling: The scheme operates by pooling the credit risks of participating MSMEs, supported by a self-financing guarantee fund. This fund offers a guarantee cover up to ₹100 crore per applicant, with the possibility of higher loan amounts.
Guarantee Fees: Borrowers are required to pay an upfront guarantee fee and an annual fee on the reducing loan balance, ensuring the scheme’s sustainability.
Implementation and Impact
Public Sector Banks (PSBs) are set to develop in-house credit assessment models to evaluate MSME loan applications, streamlining the approval process and reducing reliance on external assessments. This approach is expected to enhance credit accessibility for MSMEs, fostering growth and innovation within the sector.
The MSME sector plays a pivotal role in India’s economy, contributing significantly to employment and exports. By facilitating easier access to substantial, collateral-free loans, the government aims to bolster manufacturing capabilities, drive economic growth, and achieve the vision of a developed India.
This initiative is part of a broader strategy to support MSMEs, including reducing the turnover threshold for mandatory onboarding on the Trade Receivables Discounting System (TReDS) platform and expanding the reach of the Small Industries Development Bank of India (SIDBI) by establishing new branches in MSME clusters.
The introduction of this credit guarantee scheme underscores the government’s commitment to empowering MSMEs, recognizing their critical role in the nation’s economic development.
