Context: Government of India has introduced the Mutual Credit Guarantee Scheme for MSMEs (MCGS- MSME) to enhance credit access for the Micro, Small and Medium Enterprises (MSMEs) and bolster the growth of the manufacturing sector.
Relevance of the Topic: Prelims: Key facts about Mutual Credit Guarantee Scheme for MSMEs.
Mutual Credit Guarantee Scheme for MSMEs
- MCGS- MSME scheme will provide 60% guarantee coverage by National Credit Guarantee Trustee Company Limited (NCGTC) to Member Lending Institutions for credit facility up to Rs.100 crore.
- These loans are sanctioned to eligible MSMEs for purchase of equipment / machinery.
Key Features
- Eligibility: Borrower should be an MSME with a valid Udyam Registration Number.
- Loan details: Collateral-free loans up to Rs. 100 Crore.
- For loans up to Rs. 50 crore, the repayment period is up to 8 years, with a 2-year moratorium on principal installments.
- For loans above Rs. 50 crore, higher repayment schedule and moratorium period may be considered.
- Equipment condition: At least 75% of the project cost must be allocated for the purchase of equipment or machinery.
- Upfront contribution: MSMEs will make an initial contribution of 5% of loan amount at the time of applying for the guarantee cover.
- Annual guarantee fees: No fees during the sanction year; 1.5% per annum of loan outstanding for next three years and 1% per annum thereafter.
- Duration: Applicable to all loans for 4 years from the date of issue of operational guidelines, or until a cumulative guarantee of Rs. 7 lakh crore is issued, whichever is earlier.
Impact of the scheme on MSMEs
- Easier access to credit: Facilitate collateral free loans by banks and financial institutions to MSMEs who are in need of debt capital for their expansion and growth.
- Capital investment: Requirement to invest 75% of the loan to machinery and equipment will promote capital investment.
- Enhancing registration: The scheme requires mandatory registration with UDHYAM, this will motivate MSMEs to get registered. This will formalise operations of MSMEs and enable them access to government support and benefits.
- Reduce collateral burden: 60% guarantee by NCGTC reduces the risk for Money lending institutions and thus will encourage them to extend loans to MSMEs.
Significance of MSME in Indian Economy (As per Ministry of MSME)
- MSMEs contribute to around 30% of India’s GDP.
- MSMEs are the second largest employment provider after agriculture, providing employment to over 110 million people.
- MSMEs contribute about 45% to India’s total industrial output.
- MSMEs contribute 48% to India’s total exports.