Financial Inclusion for MSMEs: The Mutual Credit Guarantee Scheme (MCGS) for MSMEs announced in the July budget last year was launched by Finance Minister Nirmala Sitharaman on Monday. The scheme aims to enable up to Rs 100 crore collateral-free loans for MSMEs to purchase machinery or equipment. The MCGS scheme adds to the government’s initiatives, specifically around providing affordable access to credit for MSMEs.
Managed by the National Credit Guarantee Trustee Company (NCGTC), a wholly owned company of the Department of Financial Services, Ministry of Finance, the scheme will provide term loans to MSMEs with interest rate charged as per the RBI (Reserve Bank of India) guidelines and board approved policy of the lender.
Here are the key FAQs answered about the scheme:
- Who are eligible borrowers for the scheme?
MSMEs looking to get loans under the scheme; first should have an Udyam registration number; second, should not be an NPA (non-performing asset) with any lender; and third, the minimum cost of equipment or machinery should be 75 per cent of the project cost.
- Can MSMEs raise loans for existing units?
MSMEs can raise loans under the scheme for their existing as well as new projects or units, subject to meeting of eligibility parameters. While the loan amount can be over Rs 100 crore, the guarantee cover would be limited to Rs 100 crore only.
- What kind of business activities are covered under the scheme?
All business activities can be covered under the scheme. There is no specific list of activities not covered under the scheme.
- Will banks or other lenders charge processing fees to sanction loans under the scheme?
While there is no stipulation under the scheme for lender to charge processing fees, they can decide on the same as per their internal guidelines.
- Is there any upfront contribution to the loan?
5 per cent of the loan amount up to Rs 5 crore has to be deposited with the NCGTC as an upfront contribution at the time of application of guarantee cover. For loans exceeding Rs 100 crore, there would be two different repayment schedules: one for Rs 100 crore loan and two, for balance loan amount.
- What is the repayment structure?
Repayment schedule will be pro-rata and repayments have to be distributed proportionately. The repayment period for loans up to Rs 50 crore loan will be up to eight years with up to two years moratorium on principal instalments. For loans above Rs 50 crore, higher repayment schedule and moratorium period on principal instalments will be considered.
- What is the scheme’s tenure?
The scheme is for four years or till cumulative guarantees of Rs 7 lakh crore are issued.
- What is the guarantee cover?
Guarantee cover refers to the maximum cover available per loan borrower of the amount with respect to the loan given by the bank. Under the MCGS scheme, the guarantee cover is 60 per cent of the loan and start from the date of payment of the guarantee fee or the date of the first disbursement of loan under the scheme, whichever is later.