Page 25 - Banking Finance May 2025

ARTICLE

Mutual Credit

Guarantee Scheme

for MSMEs: A Game

Changer for MSME Murali Tummala

Chief Manager-Faculty
Financing Union Learning Academy
Lucknow

Micro, Small, and Medium Enterprises (MSMEs) are the backbone of India's economy, contributing
significantly to GDP, employment, and exports. Despite their critical role, MSMEs often struggle to
secure loans due to lack of collateral, stringent lending norms, and perceived high credit risk by
financial institutions.

Introduction The scheme is set to operate for four years or until a total
guarantee of Rs. 7 lakh crore is provided, whichever comes
Micro, Small, and Medium Enterprises (MSMEs) are the back-
first. It is a significant step toward bridging the financing
bone of India's economy, contributing significantly to GDP,
gap faced by MSMEs and ensuring they receive adequate
employment, and exports. Despite their critical role, MSMEs
support to expand and modernize their businesses.
often struggle to secure loans due to lack of collateral, strin-
gent lending norms, and perceived high credit risk by finan-
cial institutions. To address these challenges, the Government How MSMEs Benefit from MCGS-MSME
of India has introduced the Mutual Credit Guarantee Scheme The scheme brings multiple advantages to MSMEs:
for MSMEs (MCGS-MSME). This initiative aims to make credit MSMEs can now secure term loans up to Rs. 100 crore for
more accessible to MSMEs by reducing the risk for lenders their projects, primarily involving the purchase of machin-
through a structured guarantee mechanism. ery and equipment. The scheme covers both new and exist-
ing projects, ensuring broader access to financial support.
Understanding the Mutual Credit Guar- Borrowers with valid Udyam Registration Numbers are eli-
gible, and the loan amount is determined based on their
antee Scheme for MSMEs (MCGS-MSME) project requirements.
The MCGS-MSME is a government-backed credit guarantee
scheme managed by the National Credit Guarantee Trustee Under this scheme, at least 75% of the total project cost
Company Limited (NCGTC). It provides a 60% guarantee must be allocated towards the purchase of equipment or
cover on eligible term loans up to Rs. 100 crore for MSMEs machinery. This ensures that funds are primarily utilized for
engaged in purchasing equipment and machinery. This guar- productive asset creation, strengthening the MSME's opera-
antee reduces the risk for banks and financial institutions, tional capabilities. Additionally, the borrower should not be
encouraging them to lend more freely to MSMEs. an NPA with any lender at the time of availing the loan,

22 | 2025 | MAY | BANKING FINANCE