Government to launch new credit guarantee scheme for MSMEs covering loans up to Rs 100 crore

The government is set to introduce a new credit guarantee scheme for the Micro, Small, and Medium Enterprises (MSME) sector, providing collateral-free loans up to Rs 100 crore. Financial Services Secretary M Nagaraju announced the plan during the concluding day of the Grameen Bharat Mahotsav on Thursday.

"We are likely to come up with a scheme, announced by the Finance Minister in her last Budget, to provide loans up to Rs 100 crore without guarantee, if they are already having the enterprise," Nagaraju stated. The proposal is expected to be presented before the Union Cabinet for approval soon.

Finance Minister Nirmala Sitharaman, in her Budget 2024-25 announcement, highlighted the scheme's framework. It aims to facilitate term loans for MSMEs to purchase machinery and equipment without collateral or third-party guarantees.

The scheme will operate by pooling credit risks of MSMEs, supported by a self-financing guarantee fund. This fund will offer guarantee cover up to Rs 100 crore for each applicant, though the loan amount could exceed this limit. Borrowers will need to pay an upfront guarantee fee and an annual fee on the reducing loan balance.

The MSME sector, a crucial pillar of India’s economy, employs 50 million people. Its exports have seen substantial growth, rising from Rs 3.95 lakh crore in 2020-21 to Rs 12.39 lakh crore in 2024-25, underscoring the sector’s pivotal role in driving India’s global trade and economic progress.

Over the years, MSMEs have consistently boosted India’s GDP, with their Gross Value Added (GVA) contribution growing from 29.7% in 2017-18 to 30.1% in 2022-23.

Highlighting rural development, Nagaraju emphasized the government’s commitment to promoting entrepreneurship in rural areas through various schemes. He stressed the need to focus on four critical aspects—quality, export linkages, capacity building, and support—to achieve the vision of Vikshit Bharat.

This initiative is poised to further strengthen the MSME sector, empowering it to become a key driver of India’s economic growth.