Govt Approves Mutual Credit Guarantee Scheme to Strengthen MSME Sector

31 Jan 2025 CW Team

The Centre approved the Mutual Credit Guarantee Scheme to give a fillip to manufacturing by micro, small & medium enterprises (MSMEs), fulfilling a promise made in the previous budget and just days ahead of Union Budget 2025.

This initiative aims to strengthen the manufacturing sector by providing 60 per cent guarantee coverage for loans up to Rs 1 billion, specifically for the purchase of plant and machinery or equipment.

According to an official statement, under this scheme, eligible MSMEs with a valid Udyam Registration Number can avail substantial credit support to enhance their operational capabilities.

Key features of the scheme include a loan guarantee up to Rs 1 billion, with a minimum of 75 per cent of the project cost allocated for equipment or machinery. For loans up to Rs 500 million, a repayment period of up to eight years is allowed, with a moratorium on principal payments for up to two years.

Larger loans may have extended repayment schedules and moratorium periods. An upfront contribution of 5 per cent of the loan amount is required at the time of the guarantee application, while the annual guarantee fee is waived during the first year and set at 1.5 per cent per annum for the subsequent three years. After this period, it will reduce to 1 per cent per annum.

As global supply chains shift, India stands out as a viable alternative for manufacturing to its rich resources, competitive labour costs, and increasing manufacturing expertise.

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