Mutual Credit Guarantee Scheme (MCGS)

The Government of India has recently modified the Mutual Credit Guarantee Scheme (MCGS) in line with Budget 2025–26. The revised scheme aims to strengthen financial support for Micro, Small and Medium Enterprises (MSMEs), especially manufacturers and exporters, by improving access to credit for investment in machinery and equipment.

About Mutual Credit Guarantee Scheme

The Mutual Credit Guarantee Scheme (MCGS) is designed to facilitate easier credit flow to MSMEs by providing risk coverage to lending institutions.

Under the scheme:

• The National Credit Guarantee Trustee Company Limited provides a 60% credit guarantee to Member Lending Institutions.

• It covers loans up to ₹100 crore sanctioned to eligible MSMEs under MCGS-MSME.

• The loans are primarily intended for purchase of machinery and equipment, supporting industrial growth and modernisation.

Key Salient Features of the Revised Scheme

1. Expanded Eligibility

• Borrowers must be MSMEs with a valid Udyam Registration Number.

• The scheme now also includes service sector MSMEs, broadening its coverage.

2. Relaxed Project Requirements

• The minimum investment requirement in machinery and equipment has been reduced from 75% to 60% of the project cost.

• This makes the scheme more accessible to smaller enterprises.

3. Upfront Contribution Benefits

• The 5% upfront contribution is now refundable.

• Refund is provided at 1% per year from the fourth year onwards, subject to good loan performance.

4. Duration and Coverage Limits

• The credit guarantee will be valid for 10 years, providing long-term financial security.

• The scheme applies to loans sanctioned for 4 years or until cumulative guarantees reach ₹7 lakh crore, whichever is earlier.

Special Provisions for Exporters

The scheme also provides targeted support to eligible exporters:

• Units must be profitable MSMEs exporting at least 25% of sales turnover in each of the previous three financial years.

• The maximum guaranteed loan amount is ₹20 crore.

• Upfront contribution is 2% of loan amount (maximum ₹40 lakh).

• Refund structure: 1% each in the 4th and 5th year, subject to loan performance.

Significance of the Scheme

• Improves access to institutional credit for MSMEs

• Encourages capital investment in machinery and technology

• Supports export-oriented growth and manufacturing competitiveness

• Reduces lending risk for banks through credit guarantee cover

• Aligns with the goal of strengthening India’s MSME ecosystem under Budget 2025–26

Conclusion

The revised Mutual Credit Guarantee Scheme is a significant step toward enhancing the financial ecosystem for MSMEs in India. By improving credit availability, reducing risk for lenders, and supporting exporters, the scheme is expected to boost industrial growth, employment generation, and global competitiveness of Indian MSMEs