Credit Guarantee may be doubled for Well-run MSMES to boost manufacturing

The government may double the support to micro, small and medium enterprises (MSMEs) under the Mutual Credit Guarantee Scheme (MCGS) to Rs 200 crore for well-run firms and look at other modifications, including reducing the guarantee fee, to expand coverage of the initiative aimed at providing a boost to manufacturing in the country.

At present, loans up to Rs 100 crore provided to MSMEs are eligible for guarantee coverage to lenders under the scheme, which facilitates collate-ral-free loans by banks and financial institutions to MSMEs. The scheme is valid for four years from the date of operationalisation or till the guarantees on loans issued reach Rs 7 lakh crore, whichever comes first.

Launched on January 29, the scheme facilitates the availability of credit for the purchase of plant and machinery or equipment by MSMEs.

The other issues flagged by stakeholders are the high guarantee fees and upfront contribution requirement.

Under existing provisions, the upfront contribution is 5% of the sanctioned loan amount after deducting the collateral, within the total limit of Rs 5 crore.

The annual guarantee fee is 1.5% of the loan outstanding at the end of the previous financial year for three years after the year of sanction, which later gets reduced to 1%.

The scheme provides 60% guarantee coverage by the National Credit Guarantee Trustee Company Ltd to banks and financial institutions. Loans up to Rs 50 crore under the scheme have a repayment period of up to eight years, with a two-year moratorium on principal repayments.

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