With an aim to bolster manufacturing in India, the government, on Wednesday, approved a Mutual Credit Guarantee Scheme that will help MSMEs (Micro, Small and Medium enterprises) cover capital costs.

The scheme provides 60% guarantee coverage by National Credit Guarantee Trustee Company Limited (NCGTC) to Member Lending Institutions (MLIs) for credit facility upto Rs 100 crore sanctioned to eligible MSMEs. The scheme follows from an announcement made in Budget 2045-2025.

As global supply chains shift, India has emerged as a hotspot for manufacturing due to its supportive policies, low labour cost, technical know-how and entrepreneurial capability. One of the major expenditures for a manufacturing unit is the fixed cost of plant and machinery (P&M)/ equipment. The scheme to support capital expansion will have significant benefits for manufacturing in India.

Features of the scheme

The borrower should be an MSME with valid Udyam Registration Number and the loan amount guaranteed shall not exceed Rs 100 crore. The project cost could be of higher amount, however, the minimum cost of equipment /machinery should be 75% of the project cost.

For a loan upto Rs 50 crore under the Scheme, the repayment period will be upto 8 years with upto 2 years moratorium period on principal instalments. For loans above Rs 50 crore, higher repayment schedule and moratorium period on principal instalments can be considered.

Borrowers will have to make an upfront (initial) contribution of 5% of the loan amount at the time of application under the scheme.

Annual Guarantee Fee on loan under the Scheme shall be Nil during the year of sanction. During the next 3 years, it shall be 1.5% p.a. of loan outstanding as on March 31 of previous year. Thereafter, Annual Guarantee Fee shall be 1% p.a. of loan outstanding as on March 31 of previous year.

The Scheme will be applicable to all loans sanctioned under MCGS-MSME during the period of 4 years from the date of issue of operational guidelines of the scheme or till cumulative guarantee of Rs 7 lakh crore are issued, whichever is earlier.

Indian manufacturing sector

The manufacturing sector in India currently comprises 17% of the nation’s GDP and employs over 27.3 million workers. Calling for ‘Make in India, Make for the World’ the prime minister has launched relentless efforts at taking the share of manufacturing to 25% of GDP. The MCGS-MSME scheme will be a crucial factor in securing India’s future growth, enabling the manufacturing sector to strengthen domestic presence and expand its global footprint.