MSME Credit Guarantee Scheme: Eligibility, Guarantee Fee, Limit, Benefits, How To Apply

The Budget 2024, presented by Finance Minister Nirmala Sitharaman, gave special attention to Micro, Small, and Medium Enterprises (MSMEs), especially those in the manufacturing sector. It formulated a package to cover technology support, financing, and regulatory changes for MSMEs to help them grow and compete globally. One of the measures taken for MSMEs was the introduction of a new credit guarantee scheme to facilitate term loans to them.

Continue reading to find out all about the MSME credit guarantee scheme, eligibility, and benefits.

Budget 2025 Update

In the Union Budget 2025, the government announced an enhanced CGTMSE scheme. It doubles the guarantee for micro and small enterprises from Rs.5 crore to Rs.10 crore — unlocking Rs.1.5 lakh crore in extra credit over five years. The scheme doubles the guarantee cover for startups from Rs.10 crore to Rs.20 crore with a nominal 1% fee. It also offers term loan cover of up to Rs.20 crore for well-managed exporter MSMEs.

What is MSME credit guarantee scheme?

The MSME credit guarantee scheme enables MSMEs to secure term loans for purchasing equipment and machinery without needing a third-party guarantee or collateral. 

Approved on January 29, 2025, the scheme offers 60% guarantee coverage to Member Lending Institutions (MLIs) through the National Credit Guarantee Trustee Company Limited (NCGTC) for loans up to ₹100 crore. The scheme will combine the credit risks of MSMEs and create a self-financing guarantee fund. This fund will offer a guarantee of up to ₹100 crore for each applicant, while the loan amount can be more than ₹100 crore.

At the post-budget press conference, the Finance Minister clarified that the idea for the credit guarantee scheme came from MSMEs. Usually, MSME credit is for working capital, but they also need to invest. 

A working group chaired by the chief economic advisor of RBI and credit guarantee institutions have discussed the proposals in this scheme. This scheme is a self-financing mechanism where an MSME that wants a term loan can also avail of a credit guarantee facility for that term loan.

Purpose of MSME credit guarantee scheme

The term loan and guarantee cover under the MSME credit guarantee scheme will play a vital role in modernising the MSME manufacturing sectors by enabling MSMEs to invest in advanced infrastructure and technologies. This scheme will also help MSMEs grow and compete globally. 

MSME credit guarantee scheme eligibility

As per the Budget 2024 speech, all MSMEs in the manufacturing sector requiring term loans to purchase equipment and machinery are eligible for the credit guarantee scheme. The government has yet to release the detailed guidelines of this scheme.

Guarantee fee for MSME credit guarantee scheme

The MSME credit guarantee scheme is self-financing, which means that an MSME that wants to avail of a credit guarantee facility for a term loan will have to pay an initial upfront guarantee fee and an annual top-up fee based on the reduced balance of the loan. 

The corpus itself is self-financing, which includes pooling the upfront fees. However, the government has stated that it will provide a second-level backstop guarantee if defaults exceed a particular level.

Maximum credit limit of MSME credit guarantee scheme

The MSME credit guarantee scheme will provide a maximum guarantee cover of Rs.100 crore, irrespective of the loan amount. Thus, the loan amount can be higher, but the guarantee cover limit will only be up to Rs.100 crore.

How to apply for MSME credit guarantee scheme?

The application process for the MSME credit guarantee scheme will be provided in the detailed guidelines of the scheme. However, the government has yet to release the detailed guidelines of the MSME credit guarantee scheme announced in the Budget 2024.

Benefits of MSME credit guarantee scheme

The MSME credit guarantee scheme will support the manufacturing environment and modernise the MSME sector. It will help India become a global manufacturing powerhouse since it equips businesses with the necessary resources to enhance their global presence by expanding their capabilities. 

Facilitating collateral-free term loans and guarantee cover for MSMEs to purchase machinery and equipment under this scheme will greatly enhance the suppliers’ and manufacturers’ networks. They will act as catalysts for the entire supply chain, driving innovation and growth.

This scheme promises enhanced financial security to the MSMEs, enabling innovation and technological modernisation. It will fortify the manufacturing ecosystem, contributing significantly to India’s development and global competitiveness.

The MSME credit guarantee scheme aims to boost India’s 63 million MSMEs. The manufacturing sector contributes around 17% to India’s GDP, and its growth is necessary for the nation’s progress. Thus, this scheme greatly helps the MSMEs in the manufacturing sector, especially small businesses.