The Centre is targeting Rs 1-1.5 lakh crore credit guarantee cover in 2025-26 for micro, small and medium enterprises, under the newly launched Mutual Credit Guarantee Scheme for MSMEs.
The scheme seeks to provide 60% guarantee coverage by National Credit Guarantee Trustee Company Limited (NCGTC) to member lending institutions (MLIs) for credit facility up to Rs 100 crore sanctioned to eligible MSMEs for purchase of equipment or machinery.
To strengthen the MSME manufacturing sector, the scheme was approved by the Cabinet on January 29 for a period of four years or till cumulative guarantee of Rs 7 lakh crore are issued, whichever is earlier. The scheme will facilitate collateral-free loans by banks and financial institutions to MSMEs who are in need of debt capital for their expansion and growth.
“In 2025-26, we are targeting Rs 1-1.5 lakh crore credit guarantee,” a senior official said, adding that the government expects significant demand for the scheme given that it was based on industry’s wish to bridge credit gap. The official expressed confidence that Rs 1 lakh crore worth credit guarantee would be achieved comfortably in FY26.
“There will be a review of the scheme after two years to find out if the scheme is doing well or not. If the situation demands, we may look at it in six months also,” the official said.
Various estimates suggest the credit gap is between Rs 15 lakh crore to Rs 45 lakh crore for the Indian MSME sector, reflecting the need for a mechanism for periodic survey of the credit requirement and functioning of the government schemes. Sources said the government is mulling for such a periodic survey for better intervention in the MSME sector.
As informed by RBI, the credit outstanding of Scheduled Commercial Banks and Non-Banking Financial Companies to MSME sector has increased from Rs 18.48 lakh crore as on March 31, 2020 to Rs 31.7 lakh crore as on March 31, 2024.
“If the MCGS- MSME works well, it can continue for a longer period than four years and the target of Rs 7 lakh crore can be enhanced accordingly,” the official said.
In the Emergency Credit Line Guarantee Scheme (ECLGS), which was unveiled in 2020 amid the pandemic, was extended till March 2023. Under the scheme, 11.9 million guarantees worth Rs 3.68 lakh crore were issued to MSMEs and other businesses.
As per the data for 2022-23, the MSME sector contributed 30.1% to GDP and 36% to manufacturing output. Further, as per the data for 2023 24, the MSME sector contributed 45% to exports.