The Government of India has launched the Mutual Credit Guarantee Scheme for Micro, Small and Medium Enterprises (MCGS-MSME) with the objective of addressing the credit crunch and boosting the growth of the manufacturing sector.
Mutual Credit Guarantee Scheme
Objective
- The scheme provides 60% guarantee coverage by the National Credit Guarantee Trustee Company Limited (NCGTC).
- Member Lending Institutions (MLIs) will be given guarantee for credit facility up to Rs 100 crore.
- This assistance will be given to eligible MSMEs for purchasing equipment/machinery.
Role of Manufacturing Sector in MSME Sector
- Manufacturing sector plays a vital role in the MSME landscape.
- The sector provides employment to 3 million (2.73 crore) workers.
Features
- Eligibility: Borrower should be an MSME with a valid Udyam Registration Number.
Loan Amount:
- Maximum loan amount up to ₹100 crore will be guaranteed.
- Total project cost can exceed ₹100 crore.
Minimum Cost of Equipment/Machinery:
- At least 75% of the project cost should be on equipment/machinery.
Loan Repayment Tenure:
- Repayment tenure up to ₹50 crore with up to 8 years moratorium.
- Longer repayment tenure and moratorium may be allowed for loans above ₹50 crore.
- Initial contribution: 5% of the loan amount will be mandatory to be deposited at the time of guarantee cover application.
Annual guarantee fee
- Nil in the first year of loan sanction.
- 5% per annum for the next 3 years (based on the loan balance as on March 31).
- 1% per annum thereafter (based on the loan balance as on March 31).
- Timeline of the scheme: The scheme will be in force for 4 years or till total guarantees of ₹7 lakh crore are issued, whichever is earlier.
Key impacts
- Contribution of manufacturing sector: The manufacturing sector currently contributes 17% to India’s GDP. It employs more than 3 million (2.73 crore) workers.
- ‘Make in India, Make for the World’ initiative: The Prime Minister has given a call to Make in India, Make for the World.
- Government aims to increase the contribution of manufacturing sector to 25%.
- Support to MSME sector: Easy credit will be made available to the MSME sector through the Mutual Credit Guarantee Scheme (MCGS-MSME). It will encourage the purchase of plant, machinery and equipment.
- Boost Indian manufacturing: This scheme will strengthen the Make in India campaign and give impetus to the manufacturing sector of the country.
Other steps to make access to credit easy for MSMEs
- Credit Guarantee Fund Trust (CGTMSE): Establishment of Credit Guarantee Fund Trust to provide collateral-free loans to micro and small enterprises (MSEs).
- RAMP (Raising and Accelerating MSME Performance) programme: Investment of ₹6,000 crore for the development of MSME sector. Focus on improving the performance of MSMEs over a period of 5 years.
- Priority Sector Lending (PSL) norms: All bank loans given to MSMEs come under priority sector lending. This provides cheap and easy loans to MSMEs.