Interest Subvention Scheme for MSMEs

The Ministry of Micro, Small and Medium Enterprise (MSME) announced the Interest Subvention Scheme for MSMEs on 2nd November 2018 for scheduled commercial banks. The Ministry of MSME initially decided to implement this scheme over the Financial Years (FY) of 2018-19 and 2019-20. However, due to the COVID-19 pandemic, the government extended this scheme for another year, i.e. FY 2020-21. Thus, the scheme was in force till 31st March 2021.

Purpose of Interest Subvention Scheme

The objectives of the interest subvention scheme are as follows:

• To increase productivity in service and manufacturing enterprises.
• To give incentives to the MSMEs for onboarding GST for encouraging growth in the economy, thereby reducing the cost of credit to the MSMEs.

Eligibility of Interest Subvention Scheme

• All MSMEs meeting the following criteria are eligible under the scheme:
  • MSMEs having valid Udyog Aadhaar Number (UAN)
  • MSMEs having a valid GSTN. However, the MSMEs which are not eligible to obtain GST need not have a GSTN, and they can apply for this scheme by submitting their Permanent Account Number (PAN), or the concerned bank must categorise their loan account as MSME.
• Trading activities are covered under the scheme even without UAN.
• MSME exporters availing interest subvention for post-shipment or pre-shipment credit under the department of commerce are not eligible for assistance under the scheme.
• MSMEs already availing interest subvention under any of the state/central government schemes will not be eligible under the scheme.

Benefits Provided Under the Interest Subvention Scheme

Under this scheme, interest relief is provided on the outstanding loans/balance of the MSMEs at 2% p.a. from the date of disbursal of the loan or the notification date of this scheme, whichever is later. The interest subvention of 2% is provided to the MSMEs on the fresh/incremental amount of working capital sanctioned or new/incremental term loan disbursed by the eligible institutions.

Applicability of the Interest Subvention Scheme

An MSME can claim interest subvention for the total of its working capital or term loan sanctioned by an eligible institution up to the extent of Rs.100 lakh. The subsidy under this scheme is the interest subvention on the outstanding balance of the loans taken by MSMEs.

The MSMEs can also claim interest subvention on the outstanding balance of the incremental or fresh amount of working capital sanctioned or disbursed to them by more than one scheduled commercial bank.

The government extended this scheme to cover co-operative banks, which became eligible lending institutions under the scheme since the outbreak of COVID-19. Accordingly, fresh or incremental term loans or working capital extended by co-operative and scheduled commercial banks from 3rd March 2020 till 31st March 2021 were eligible for coverage under the scheme.

Implementing Agency of Interest Subvention Scheme

The Small Industries Development Bank of India (SIDBI) is the implementing agency for the interest subvention scheme. All lending institutions should submit accurate data and monitor the interest subvention scheme. The nodal office of eligible institutions must submit to the SIDBI their half-yearly claims in the format provided by the interest subvention scheme guidelines for claim submission of the scheme. 

MSMEs can directly apply for obtaining interest subvention on the outstanding working capital or term loan with the eligible lending institutions. The interest subvention would be released based on the claim duly certified by the Statutory Auditors of the eligible lending institutions.

The SIDBI will release interest subvention amount subject to the availability of funds from the government. The Ministry of MSME is the final authority for all interest subvention matters, and their decision would be binding and final. The receipt of funds by the eligible lending institutions are treated as utilisation certificates of the fund.

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