The Government of India is preparing to introduce a new credit guarantee scheme aimed at empowering Micro, Small, and Medium Enterprises (MSMEs) by facilitating loans up to ₹100 crore without requiring collateral or third-party guarantees. Financial Services Secretary M. Nagaraju made this announcement on January 9, 2025, during the concluding session of the Grameen Bharat Mahotsav.
This initiative, announced by Finance Minister Ni\rmala Sitharaman in the Budget 2024-25, is expected to be presented to the Union Cabinet for approval soon. The scheme seeks to promote entrepreneurship and support MSMEs in scaling their operations through accessible financing options.
Key Features of the Scheme
The proposed credit guarantee scheme will focus on providing term loans to MSMEs for acquiring machinery and equipment, a vital step to enhance production capacity and competitiveness. The scheme will operate by pooling credit risks, supported by a specially constituted self-financing guarantee fund. This fund will offer a guarantee cover of up to ₹100 crore per applicant, even if the loan amount exceeds this threshold.
Borrowers will be required to pay an upfront guarantee fee and an annual fee on the reduced loan balance, ensuring the scheme’s financial sustainability while extending critical support to businesses.
MSMEs: A Backbone of India’s Economy
The MSME sector plays a pivotal role in India’s economic landscape, employing approximately 50 million people and significantly contributing to GDP. Its share in the nation’s Gross Value Added (GVA) increased from 29.7% in 2017-18 to 30.1% in 2022-23. Moreover, MSME exports have experienced remarkable growth, surging from ₹3.95 lakh crore in 2020-21 to ₹12.39 lakh crore in 2024-25. This progress highlights the sector’s resilience and its vital contribution to strengthening India’s position in global trade.
Promoting Rural Entrepreneurship
The government also aims to channel increased credit to rural areas to foster entrepreneurship and economic growth. Secretary Nagaraju emphasized the importance of focusing on quality, export linkages, capacity building, and sustained support to achieve the vision of a “Vikshit Bharat” (Developed India). The scheme aligns with this vision by equipping MSMEs with the tools they need to thrive in competitive markets.
A Step Towards Inclusive Growth
This credit guarantee scheme is expected to act as a catalyst for the MSME sector, which is often regarded as the backbone of India’s economy. By addressing the critical challenge of accessing affordable credit, the scheme will enable enterprises to invest in technology, expand operations, and enhance productivity, contributing to overall economic growth.