Govt To Launch New Credit Guarantee Scheme for MSMEs, Offering Loans Up to Rs 100 Crore
NEW DELHI, Jan 9: The government is set to soon introduce a new credit guarantee scheme aimed at supporting the Micro, Small, and Medium Enterprises (MSME) sector, offering loans of up to Rs 100 crore without requiring collateral. Financial Services Secretary M. Nagaraju announced this new initiative on Thursday during the concluding session of the Grameen Bharat Mahotsav. This scheme, which was initially outlined by Finance Minister Nirmala Sitharaman in the 2024-25 Union Budget, is designed to enhance the growth prospects of MSMEs by facilitating easier access to financial resources, without the need for guarantees or third-party collateral, provided the businesses already have an established enterprise.
Nagaraju explained that the credit guarantee scheme would be officially presented to the Union Cabinet for approval shortly. The scheme’s primary focus will be to provide term loans to MSMEs for the purchase of machinery and equipment without any collateral. It will operate on the principle of pooling credit risks of MSMEs, supported by a self-financing guarantee fund that will extend coverage up to Rs 100 crore for each eligible applicant, although the loan amount could be larger.
In addition to providing the upfront guarantee fee, borrowers will be required to pay an annual guarantee fee on the reduced loan balance, as per the Finance Minister’s announcement during the Budget presentation. This initiative aims to make it easier for MSMEs to secure funding and grow their operations, which is vital for India’s economic expansion.
The MSME sector, which employs around 50 million people, has been a major contributor to India’s economy. Exports from this sector have seen a remarkable rise, growing from Rs 3.95 lakh crore in 2020-21 to an expected Rs 12.39 lakh crore by 2024-25, highlighting its pivotal role in both boosting the domestic economy and strengthening India’s position in global trade. Moreover, the Gross Value Added (GVA) contribution of MSMEs to India’s GDP has steadily increased from 29.7 percent in 2017-18 to 30.1 percent in 2022-23, demonstrating the sector’s growing importance.
Recognizing the need to boost entrepreneurship, especially in rural areas, Nagaraju emphasized the government’s commitment to lending more to rural businesses through various supportive schemes. As India moves toward its goal of becoming a developed nation, he stressed the importance of focusing on four critical areas: enhancing quality, establishing stronger export linkages, capacity building, and offering robust support for achieving the vision of “Vikshit Bharat” (Developed India). This new credit guarantee scheme is a significant step in ensuring that MSMEs, particularly in rural India, continue to thrive and contribute meaningfully to the nation’s growth and development.
