Context:

Recently, the Central Government approved a Mutual Credit Guarantee Scheme to strengthen the micro, small and medium (MSME) Manufacturing Sector. 

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The scheme provides 60% guarantee coverage by National Credit Guarantee Trustee Company Limited (NCGTC) to Member Lending Institutions (MLIs) for credit facilities up to Rs 100 crore sanctioned to eligible MSMEs for the purchase of equipment or machinery. 

• MLIs are all Scheduled Commercial Banks (SCBs), Non-Banking Financial Companies (NBFCs) and All India Financial institutions (AIFIs), that register with NCGTC under the Scheme. 

The Scheme is applicable to all loans sanctioned under MCGS-MSME during the period of 4 years from the date of issuance of operational guidelines of the scheme or till a cumulative guarantee of Rs. 7 lakh crore is issued, whichever is earlier.

It will provide a significant boost to the manufacturing sector, thereby supporting the 'Make in India' initiative. 

Salient Features of The Scheme

• The Borrower should be an MSME with a valid Udyam Registration Number.
• Loan amount guaranteed shall not exceed Rs.100 crore.
• While the Project Cost could be of higher amounts, a minimum of 75% of the project cost must be allocated to equipment or machinery.
• Loan upto Rs.50 crore under the Scheme shall have a repayment period of upto 8 years with upto 2 years moratorium period on principal instalments. For loans above Rs.50 crore, a higher repayment schedule and moratorium period on principal instalments can be considered.
• An upfront (initial) contribution of 5% of the loan amount shall be deposited at the time of application of guarantee cover. 
• Annual Guarantee Fee on loan under the Scheme shall be Nil during the year of sanction. For the next 3 years, it shall be 1.5% per annum of loan outstanding as of March 31 of the previous year. Thereafter, the Annual Guarantee Fee shall be 1% p.a. of the loan outstanding as of March 31 of previous years.

Overview of the MSME Sector in India

• MSMEs are often referred to as the powerhouse of the Indian economy. They are crucial for employment creation, exports, and overall economic development.
• They account for more than 11 crore jobs and contribute around 30.0% of India’s GDP.
• MSMEs contribute 38.4% of the total manufacturing output and are responsible for 45.03% of the country’s total exports. 
• According to the 2020-21 Annual Report of the Ministry of MSMEs, the top five states with the highest concentration of manufacturing MSMEs are Uttar Pradesh, Maharashtra, Tamil Nadu, Karnataka, and Gujarat. 

Key Government Initiatives for the MSME Manufacturing Sector

• The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGMSE): It aims to make available collateral-free credit to the micro and small enterprise sector.
• The Ministry of Micro, Small and Medium Enterprises implements the Public Procurement Policy for Micro and Small Enterprises Order, 2012 under the MSMED Act, 2006. This Policy mandates 25% annual procurement from Micro and Small Enterprises by Central Ministries/ Departments/ Central Public Sector Enterprises.
• International Co-operation Scheme: It aims to encourage MSMEs to export their products and facilitates participation of MSMEs in international exhibitions/fairs/buyer-seller meets held abroad and organizes international conferences/seminars/workshops in India.
• Raising and Accelerating MSME Performance (RAMP) Program: It is a World Bank supported scheme launched in 2022 for a five-year period 2022-23 to 2026-27. It aims at improving access of MSMEs to market, finance and technology upgradation.