In a move aimed at revitalizing the nation’s manufacturing sector, the government has unveiled a new credit guarantee scheme specifically designed for Micro, Small, and Medium Enterprises (MSMEs). This initiative, fulfilling a key budget promise, will significantly ease access to finance for textile businesses and others seeking to modernize their operations. The Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME) will guarantee loans up to ₹100 crore for the purchase of essential plant, machinery, and equipment.
The scheme offers a 60% guarantee coverage to lending institutions, mitigating their risk and encouraging them to extend credit to MSMEs. Eligible businesses must possess a valid Udyam Registration Number. A key feature is the requirement that equipment and machinery constitute at least 75% of the total project cost, ensuring the funds are directly invested in production capacity.
Loan terms are structured to support sustainable growth. Loans up to ₹50 crore offer a repayment period of up to eight years, including a potential two-year moratorium on principal payments. Larger loans may qualify for extended repayment schedules and moratoriums. A nominal upfront contribution of 5% of the loan amount is required, while the annual guarantee fee is waived during the first year. Subsequent years will see a modest fee, gradually decreasing over time.
This scheme will remain in effect for four years from the release of operational guidelines, or until a cumulative guarantee of ₹27 lakh crore is issued. This initiative is expected to significantly benefit the textile industry, a critical component of the manufacturing sector, which currently accounts for 17% of the nation’s GDP and employs over 27 million people. The government has set an ambitious target to increase manufacturing’s GDP share to 25%, and this scheme represents a substantial step toward achieving that goal.
