Mutual Credit Guarantee Scheme (MCGS)
Why in News?
The Mutual Credit Guarantee Scheme (MCGS) for MSMEs is in the news because the Government of India announced significant modifications to its framework on March 21, 2026. These revisions, in line with Budget 2025–26, are specifically designed to bolster credit access for manufacturers and exporters in the MSME sector.
Key Features
- Provides 60% guarantee coverage by National Credit Guarantee Trustee Company (NCGTC) on term loans up to Rs. 100 crore for machinery/equipment purchases.
- Targets MSMEs with valid Udyam Registration; now includes service sector MSMEs.
- Minimum project cost for machinery reduced to 60% (from 75%); 5% upfront fee refundable (1% annually from year 4, if loan performs well).
- Guarantee valid for 10 years; applies to loans over 4 years or until Rs. 7 lakh crore cumulative guarantees.
Eligibility and Process
- Borrowers: Eligible MSMEs (micro, small, medium) via Member Lending Institutions (MLIs) like banks and NBFCs registered with NCGTC.
- Loans: Collateral-free; repayment up to 8-12 years (with 2–3-year moratorium); interest as per MSME guidelines.
- Application: MSMEs apply through MLIs; lenders assess credit, get guarantee approval, disburse funds; covers default risk.
Objectives and Impact
- Boosts Make in India by enhancing collateral-free credit, aiming to raise manufacturing GDP share to 25%.
- Supports job creation (MSMEs employ over 27 million); improves global competitiveness for exporters.
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