Centre to issue loans up to Rs 100 cr for MSME units under Mutual Credit Guarantee Scheme; check details

The introduction of the Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME) has been approved by the Centre. This scheme will provide a 60% guarantee coverage by the National Credit Guarantee Trustee Company Limited (NCGTC) to Member Lending Institutions for credit facilities up to Rs.100 crore sanctioned to eligible MSMEs for the purchase of equipment/machinery. 

The scheme will provide 60% guarantee coverage to Member Lending Institutions (MLIs) for credit facilities up to Rs.100 crore granted to qualified MSMEs. MLIs include all Scheduled Commercial Banks (SCBs), Non-Banking Financial Companies (NBFCs), and All India Financial Institutions (AIFIs) that enroll with NCGTC under this initiative.

Loans of up to Rs 100 crore will be issued for the acquisition of Plant and Machinery or equipment are eligible for guarantee coverage under the scheme, which aims to support the manufacturing sector.

The scheme will apply to all loans sanctioned under MCGS-MSME within a period of 4 years from the date of issuing the operational guidelines of the scheme or until a cumulative guarantee of Rs. 7 lakh crore is reached, whichever comes first.

"To give a boost to manufacturing by facilitating the availability of credit for purchase of Plant and Machinery / Equipment, ‘Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME) is being introduced. The scheme will facilitate collateral-free loans by banks and financial institutions to MSMEs who are in need of debt capital for their expansion and growth," the Finance ministry said in a statement.

Key features

• To be eligible for the loan guarantee scheme, the borrower must be a Micro, Small, and Medium Enterprise (MSME) registered with a valid Udyam Registration Number. 
• The guaranteed loan amount should not exceed Rs.100 crore, while the project cost can be higher. The minimum cost of equipment/machinery should be 75% of the project cost.
• For loans up to Rs.50 crore, the repayment period can be up to 8 years with a moratorium period of up to 2 years on principal instalments. Loans above Rs.50 crore may have a different repayment schedule and moratorium period.
• A 5% initial contribution of the loan amount must be deposited at the time of applying for the guarantee cover. 
• There is no Annual Guarantee Fee during the year of sanction. 
• From the second to fourth year, the fee is 1.5% of the outstanding loan amount as of March 31 of the previous year. 
• After that, the Annual Guarantee Fee is 1% of the outstanding loan amount as of March 31 of the previous year.