The Centre will likely roll out a low-cost credit card scheme for micro businesses later this month, in a move aimed at sharply reducing borrowing costs and easing working capital stress among smaller businesses.

The proposed scheme will offer unsecured credit cards with a limit of up to Rs 5 lakh for micro enterprises, particularly those registered on the Udyam portal. Unlike conventional credit cards that typically charge annualised interest rates of 36–42% on outstanding balances, the new cards are expected to cap rates at nearly half that level, around 18%, sources said.

Effective borrowing costs could fall to below 18%, aided by a 30-day interest-free period and flexible repayment options.

“It is almost ready to roll out. Banks are now getting ready with their products for likely launch later this month,” a person familiar with the development said.

Govt’s plan to incentivise banks

To encourage participation, the government plans to incentivise banks by covering part of the card issuance and processing costs for the first 10 lakh cards. One-time assistance of up to Rs 500 per card may be provided.

Crucially, the scheme will likely be backed by credit guarantee frameworks such as CGTMSE or CGFMU, which will reduce default risk for lenders and enable them to offer lower interest rates.

The initiative has the potential to unlock between Rs 25,000 crore and Rs 50,000 crore in additional credit for the MSME sector annually, depending on utilisation levels, providing a timely boost to a segment that remains critical to employment and economic growth amid geopolitical shocks.

The scheme is designed to address the chronic liquidity constraints faced by micro units, many of which depend on high-cost credit to bridge gaps caused by delayed payments from larger buyers. Payment cycles often stretch up to 90 days or more, disrupting cash flows and affecting their ability to meet operational expenses such as wages and inventory purchases.

Outstanding dues to be converted into EMIs

To further ease the burden, the card will allow users to convert outstanding dues into equated monthly instalments (EMIs) at significantly lower interest rates, typically in the range of 10–12%, sources said.

The government is targeting the smallest borrowers, including those already availing loans under the Mudra scheme. These businesses, which typically borrow Rs 15–20 lakh, will be able to access an additional Rs 5 lakh through the card to meet short-term liquidity needs. Initially, banks are expected to offer the product to existing customers with established credit relationships (ETB customers).