Government Modifies Guarantee Scheme To Aid MSME Manufacturers

26 Mar 2026 CW Team

The Ministry of Finance said the revisions expand coverage and reduce the compliance burden for lenders and borrowers while adding targeted incentives for exporter MSMEs. The five per cent upfront contribution has been made refundable and one per cent of that amount will be returned each year from the fourth year onwards subject to satisfactory loan performance. Eligibility criteria have been broadened to include service sector MSMEs and the minimum project cost requirement towards machinery and equipment has been reduced to 60 per cent from the earlier 75 per cent.

Officials indicated that reducing the minimum project cost threshold and refunding part of the upfront contribution should improve loan affordability and encourage units to invest in modern machinery. Lenders are expected to see streamlined procedures and a lower compliance burden when processing guarantees for manufacturing and export activities. The scheme changes seek to align financing incentives with the government objective of strengthening domestic manufacturing and expanding exports.

The modifications are projected to increase the availability of credit for MSMEs and to support employment and competitiveness in supply chains serving overseas markets. Member Lending Institutions will continue to assess credit risk under existing norms while benefiting from enhanced guarantee support for sanctioned facilities. The Ministry anticipates that clearer terms and expanded coverage will lead to a higher take-up of equipment financing among eligible enterprises.

The Government has modified the Mutual Credit Guarantee Scheme to improve access to credit for Micro, Small and Medium Enterprises following the Budget for 2025-26. The changes are intended to support manufacturing and export-orientated units and to provide incentives aimed at increasing equipment investment. Under the scheme the National Credit Guarantee Trustee Company Limited provides 60 per cent guarantee coverage to Member Lending Institutions for credit facilities of up to Rs one billion (bn) sanctioned to eligible MSMEs for the purchase of equipment and machinery. The Ministry of Finance said the revisions expand coverage and reduce the compliance burden for lenders and borrowers while adding targeted incentives for exporter MSMEs. The five per cent upfront contribution has been made refundable and one per cent of that amount will be returned each year from the fourth year onwards subject to satisfactory loan performance. Eligibility criteria have been broadened to include service sector MSMEs and the minimum project cost requirement towards machinery and equipment has been reduced to 60 per cent from the earlier 75 per cent. Officials indicated that reducing the minimum project cost threshold and refunding part of the upfront contribution should improve loan affordability and encourage units to invest in modern machinery. Lenders are expected to see streamlined procedures and a lower compliance burden when processing guarantees for manufacturing and export activities. The scheme changes seek to align financing incentives with the government objective of strengthening domestic manufacturing and expanding exports. The modifications are projected to increase the availability of credit for MSMEs and to support employment and competitiveness in supply chains serving overseas markets. Member Lending Institutions will continue to assess credit risk under existing norms while benefiting from enhanced guarantee support for sanctioned facilities. The Ministry anticipates that clearer terms and expanded coverage will lead to a higher take-up of equipment financing among eligible enterprises.

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