Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME)

Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME). To boost India’s Micro, Small, and Medium Enterprises (MSMEs), the Government of India has launched the Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME). This scheme is designed to bridge the credit gap by providing 60% government-backed guarantee coverage for loans up to Rs.100 crore, enabling small businesses to invest in machinery and equipment without fear of financial strain. This is a timely intervention considering the financial constraints often faced by MSMEs when scaling operations or entering global markets. The scheme is implemented through the National Credit Guarantee Trustee Company Limited (NCGTC), a body under the Department of Financial Services, Ministry of Finance. Let us explore the Mutual Credit Guarantee Scheme for MSMEs in detail, including its features, eligibility criteria, benefits, process, and impact on the sector.
What is the Mutual Credit Guarantee Scheme (MCGS)?
The Mutual Credit Guarantee Scheme (MCGS) is a credit support initiative focused exclusively on enhancing the capacity of MSMEs by offering partial credit guarantees. Under this scheme, the government provides a 60% guarantee on the credit facility sanctioned by Member Lending Institutions (MLIs) such as Scheduled Commercial Banks, All India Financial Institutions, and Non-Banking Financial Companies (NBFCs).
The primary goal of this scheme is to encourage financial institutions to lend to MSMEs without hesitation by sharing the credit risk. It ensures that MSMEs receive the necessary funding to purchase machinery and equipment, essential for productivity enhancement and competitiveness.
Key Features of MCGS-MSME
The Mutual Credit Guarantee Scheme for MSMEs comes with several impactful features that make it highly attractive for both lenders and borrowers. Here are the core features explained in simple terms:
1. 60% Government Guarantee
The most critical element of the scheme is the 60% guarantee coverage provided by the government through NCGTC. This means that if an MSME defaults on a loan sanctioned under this scheme, the lending institution can recover up to 60% of the outstanding amount from NCGTC. This reduces the lending risk significantly and encourages financial institutions to support MSMEs.
2. Loan Limit of Rs.100 Crore
MSMEs can avail credit facilities up to Rs.100 crore under this scheme. This high credit cap allows medium-sized enterprises to undertake significant capital investments, especially in machinery, which often comes with a substantial cost.
3. Focus on Machinery and Equipment Purchase
The scheme specifically focuses on financing the purchase of capital equipment and machinery. To ensure that the funds are used effectively, the cost of equipment or machinery must constitute at least 75% of the total project cost. This ensures that the credit availed contributes directly to increasing the enterprise's production capacity.
4. Operated by NCGTC
The National Credit Guarantee Trustee Company Limited (NCGTC) is responsible for implementing and managing this scheme. It is a government-owned company under the Ministry of Finance, ensuring transparency and smooth execution.
5. Validity of the Scheme
The MCGS-MSME scheme is applicable for four years from the date of issuance of its operational guidelines or until a cumulative guarantee of Rs.7 lakh crore is reached, whichever is earlier. This ensures a substantial window for MSMEs to access credit support.
Eligibility Criteria for MSMEs
The Mutual Credit Guarantee Scheme for MSMEs has specific eligibility conditions that businesses must fulfill to avail of its benefits. These criteria are designed to ensure that the scheme reaches genuine and growth-oriented enterprises.
1. Valid Udyam Registration
Only those entities that are registered under the Udyam portal as MSMEs are eligible. This ensures that the applicant enterprise is officially recognized by the government as a micro, small, or medium enterprise.
2. No Overdue Loans or NPA Status
The applying MSME must not have any overdue loan repayments or be classified as a Non-Performing Asset (NPA) by any lender. This ensures that only financially responsible businesses can avail of the guarantee support.
3. Capital Equipment Investment Requirement
At least 75% of the total project cost must be allocated to equipment and machinery purchases. This stipulation ensures that the funding directly enhances productive capacity rather than being used for unrelated operational expenses.
Process of Loan Approval and Guarantee Coverage
The Mutual Credit Guarantee Scheme (MCGS) operates through a structured and digital process to ensure efficiency and transparency. Here's how the process unfolds:
1. Loan Sanction by Lending Institution: Once an MSME applies for a loan and meets the eligibility requirements, the Member Lending Institution (MLI) sanctions the loan, primarily for machinery or equipment purchase.
2. Submission to NCGTC: The MLI then uploads the loan details along with the required guarantee fee on the NCGTC portal.
3. Guarantee Confirmation: After due verification, NCGTC confirms the guarantee coverage. This acts as a safety net for the lender, ensuring that up to 60% of the loan is protected.
4. Loan Disbursement: Once the guarantee is confirmed, the MLI disburses the loan to the MSME, enabling them to invest in capital goods.
This process ensures that MSMEs can confidently access large credit facilities while financial institutions are reassured by the risk-sharing arrangement.
Benefits of MCGS-MSME for Small Enterprises
The launch of the Mutual Credit Guarantee Scheme for MSMEs has several direct and indirect benefits for businesses in the MSME sector:
Encouragement for Capital Investment
The scheme encourages MSMEs to invest in modern machinery and equipment, enabling them to upgrade technology, improve quality, and enhance productivity. This is crucial for Indian manufacturers aiming to compete in domestic and global markets.
Improved Access to Large Credit
Traditionally, MSMEs face credit constraints due to their small size and lack of collateral. With a 60% government guarantee, banks and NBFCs are more willing to offer high-ticket loans up to Rs.100 crore, improving credit accessibility.
Lower Financing Risk
Financial institutions often hesitate to lend to small businesses due to perceived credit risks. The guarantee coverage reduces this risk significantly, promoting higher credit flow to the sector.
Support for Exports and Global Value Chains
The scheme supports export-oriented MSMEs that require significant investment in machinery to meet international quality standards. It aligns well with India’s “Make in India, Make for the World” initiative.
Industry Response and Future Prospects for this Scheme
The Federation of Indian Export Organisations (FIEO) and other industry bodies have welcomed the scheme as a much-needed relief and growth booster. They have highlighted that the lack of adequate financing for capital investments has long hindered the ability of MSMEs to scale operations and participate in global value chains.
Exporters believe that with the MCGS-MSME scheme, they can now invest in capacity expansion, quality improvement, and technological upgrades. This will not only improve their global competitiveness but also contribute to India’s export growth and employment generation.
Complementary Tax Reforms Supporting MSMEs
Alongside the MCGS-MSME scheme, the government has taken several tax-related initiatives to simplify compliance and reduce the financial burden on small businesses. These include:
1. Presumptive Taxation under Section 44AD and 44AE: Small businesses and transport operators can declare income on a presumptive basis, reducing the need for complex bookkeeping.
2. Relaxation under Section 44AB: Threshold limits for mandatory tax audits have been increased, reducing the compliance cost for many MSMEs.
3. Removal of TCS on Sale of Specified Goods: Section 206C has been amended to remove Tax Collected at Source obligations in specific cases, simplifying business transactions.
4. Rationalisation of TDS Rates: Reduction and clarification of TDS (Tax Deducted at Source) rates help small businesses manage their cash flows better.
5. Proposed New Income-Tax Bill, 2025: A simplified and more transparent tax framework is being proposed to support ease of doing business.
These initiatives, combined with the MCGS-MSME scheme, create a more supportive ecosystem for MSMEs in India.
Impact on India’s Manufacturing Sector
Currently, the manufacturing sector contributes 17% to India’s GDP and employs over 27.3 million workers. MSMEs form the backbone of this sector, and access to large-scale credit can help them scale production and integrate into the global supply chain, especially in sectors like electronics, textiles, and auto components.
Experts such as Mr. Deep Kapuria, an international trade consultant, have praised the timing of the scheme, especially in the post-pandemic phase when many MSMEs are focusing on recovery and expansion. He also emphasized that this scheme will drive component manufacturing relocation to India, enhancing the country’s position as a global manufacturing hub.
Conclusion
The Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME) is a transformative policy initiative that can reshape India’s MSME sector. With a 60% government-backed guarantee on loans up to Rs.100 crore, the scheme opens new doors for small and medium businesses to invest in high-quality machinery and technology, which is essential for scaling operations and competing globally.
By offering an institutional safety net to financial lenders and simplifying the process through the NCGTC platform, the scheme promotes confidence in MSME lending. In parallel, tax reforms and proposed legislation further enhance the business environment, making it easier for MSMEs to operate and grow.
FAQs
Q1. What is the Mutual Credit Guarantee Scheme (MCGS) for MSMEs?
Ans. The Mutual Credit Guarantee Scheme (MCGS-MSME) is a government-backed initiative launched to help Micro, Small, and Medium Enterprises access large credit facilities. Under this scheme, MSMEs can avail loans up to Rs.100 crore with a 60% guarantee coverage provided by the National Credit Guarantee Trustee Company (NCGTC). The credit is primarily meant for purchasing equipment and machinery.
Q2. Who is eligible to apply under the MCGS-MSME scheme?
Ans. To be eligible for the scheme:

The business must be registered as an MSME with a valid Udyam Registration Number.

It should not be classified as an NPA (Non-Performing Asset) with any lender.

At least 75% of the total project cost must be allocated towards equipment or machinery purchase.

Q3. What is the maximum loan amount covered under the MCGS scheme?
Ans. The maximum loan amount that can be covered under the Mutual Credit Guarantee Scheme for MSMEs is Rs.100 crore. Out of this, 60% of the sanctioned loan amount is backed by the government as a credit guarantee.
Q4. Which financial institutions are eligible to provide loans under MCGS-MSME?
Ans. Eligible Member Lending Institutions (MLIs) under the scheme include:

Scheduled Commercial Banks (SCBs)

All India Financial Institutions (AIFIs)

Non-Banking Financial Companies (NBFCs)
 These institutions must sign an agreement with NCGTC to participate in the scheme.

Q5. What is the duration or validity of the MCGS scheme?
Ans. The MCGS-MSME scheme will be in force for four years from the date of issuing operational guidelines or until the cumulative guarantee amount of Rs.7 lakh crore is reached, whichever comes earlier.
Q6. How can MSMEs apply for loans under this scheme?
Ans. MSMEs need to approach an eligible bank or NBFC (MLI) and apply for a loan. Once the loan is sanctioned, the lender submits the details to the NCGTC portal. After verification and payment of the guarantee fee, the NCGTC confirms the guarantee, and the loan is disbursed to the MSME.
Q7. Can MSMEs use the loan for working capital or only for machinery purchase?
Ans. No, the scheme is specifically designed for capital investments in equipment and machinery. At least 75% of the project cost must be used for these purposes. Loans for working capital or other expenses are not covered under this guarantee.

To boost India’s Micro, Small, and Medium Enterprises (MSMEs), the Government of India has launched the Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME). This scheme is designed to bridge the credit gap by providing 60% government-backed guarantee coverage for loans up to Rs.100 crore, enabling small businesses to invest in machinery and equipment without fear of financial strain. This is a timely intervention considering the financial constraints often faced by MSMEs when scaling operations or entering global markets. The scheme is implemented through the National Credit Guarantee Trustee Company Limited (NCGTC), a body under the Department of Financial Services, Ministry of Finance. Let us explore the Mutual Credit Guarantee Scheme for MSMEs in detail, including its features, eligibility criteria, benefits, process, and impact on the sector.

What is the Mutual Credit Guarantee Scheme (MCGS)?

The Mutual Credit Guarantee Scheme (MCGS) is a credit support initiative focused exclusively on enhancing the capacity of MSMEs by offering partial credit guarantees. Under this scheme, the government provides a 60% guarantee on the credit facility sanctioned by Member Lending Institutions (MLIs) such as Scheduled Commercial Banks, All India Financial Institutions, and Non-Banking Financial Companies (NBFCs).

The primary goal of this scheme is to encourage financial institutions to lend to MSMEs without hesitation by sharing the credit risk. It ensures that MSMEs receive the necessary funding to purchase machinery and equipment, essential for productivity enhancement and competitiveness.

Key Features of MCGS-MSME

The Mutual Credit Guarantee Scheme for MSMEs comes with several impactful features that make it highly attractive for both lenders and borrowers. Here are the core features explained in simple terms:

1. 60% Government Guarantee

The most critical element of the scheme is the 60% guarantee coverage provided by the government through NCGTC. This means that if an MSME defaults on a loan sanctioned under this scheme, the lending institution can recover up to 60% of the outstanding amount from NCGTC. This reduces the lending risk significantly and encourages financial institutions to support MSMEs.

2. Loan Limit of Rs.100 Crore

MSMEs can avail credit facilities up to Rs.100 crore under this scheme. This high credit cap allows medium-sized enterprises to undertake significant capital investments, especially in machinery, which often comes with a substantial cost.

3. Focus on Machinery and Equipment Purchase

The scheme specifically focuses on financing the purchase of capital equipment and machinery. To ensure that the funds are used effectively, the cost of equipment or machinery must constitute at least 75% of the total project cost. This ensures that the credit availed contributes directly to increasing the enterprise's production capacity.

4. Operated by NCGTC

The National Credit Guarantee Trustee Company Limited (NCGTC) is responsible for implementing and managing this scheme. It is a government-owned company under the Ministry of Finance, ensuring transparency and smooth execution.

5. Validity of the Scheme

The MCGS-MSME scheme is applicable for four years from the date of issuance of its operational guidelines or until a cumulative guarantee of Rs.7 lakh crore is reached, whichever is earlier. This ensures a substantial window for MSMEs to access credit support.

Eligibility Criteria for MSMEs

The Mutual Credit Guarantee Scheme for MSMEs has specific eligibility conditions that businesses must fulfill to avail of its benefits. These criteria are designed to ensure that the scheme reaches genuine and growth-oriented enterprises.

1. Valid Udyam Registration

Only those entities that are registered under the Udyam portal as MSMEs are eligible. This ensures that the applicant enterprise is officially recognized by the government as a micro, small, or medium enterprise.

2. No Overdue Loans or NPA Status

The applying MSME must not have any overdue loan repayments or be classified as a Non-Performing Asset (NPA) by any lender. This ensures that only financially responsible businesses can avail of the guarantee support.

3. Capital Equipment Investment Requirement

At least 75% of the total project cost must be allocated to equipment and machinery purchases. This stipulation ensures that the funding directly enhances productive capacity rather than being used for unrelated operational expenses.

Process of Loan Approval and Guarantee Coverage

The Mutual Credit Guarantee Scheme (MCGS) operates through a structured and digital process to ensure efficiency and transparency. Here's how the process unfolds:

1. Loan Sanction by Lending Institution: Once an MSME applies for a loan and meets the eligibility requirements, the Member Lending Institution (MLI) sanctions the loan, primarily for machinery or equipment purchase.

2. Submission to NCGTC: The MLI then uploads the loan details along with the required guarantee fee on the NCGTC portal.

3. Guarantee Confirmation: After due verification, NCGTC confirms the guarantee coverage. This acts as a safety net for the lender, ensuring that up to 60% of the loan is protected.

4. Loan Disbursement: Once the guarantee is confirmed, the MLI disburses the loan to the MSME, enabling them to invest in capital goods.

This process ensures that MSMEs can confidently access large credit facilities while financial institutions are reassured by the risk-sharing arrangement.

Benefits of MCGS-MSME for Small Enterprises

The launch of the Mutual Credit Guarantee Scheme for MSMEs has several direct and indirect benefits for businesses in the MSME sector:

Encouragement for Capital Investment

The scheme encourages MSMEs to invest in modern machinery and equipment, enabling them to upgrade technology, improve quality, and enhance productivity. This is crucial for Indian manufacturers aiming to compete in domestic and global markets.

Improved Access to Large Credit

Traditionally, MSMEs face credit constraints due to their small size and lack of collateral. With a 60% government guarantee, banks and NBFCs are more willing to offer high-ticket loans up to Rs.100 crore, improving credit accessibility.

Lower Financing Risk

Financial institutions often hesitate to lend to small businesses due to perceived credit risks. The guarantee coverage reduces this risk significantly, promoting higher credit flow to the sector.

Support for Exports and Global Value Chains

The scheme supports export-oriented MSMEs that require significant investment in machinery to meet international quality standards. It aligns well with India’s “Make in India, Make for the World” initiative.

Industry Response and Future Prospects for this Scheme

The Federation of Indian Export Organisations (FIEO) and other industry bodies have welcomed the scheme as a much-needed relief and growth booster. They have highlighted that the lack of adequate financing for capital investments has long hindered the ability of MSMEs to scale operations and participate in global value chains.

Exporters believe that with the MCGS-MSME scheme, they can now invest in capacity expansion, quality improvement, and technological upgrades. This will not only improve their global competitiveness but also contribute to India’s export growth and employment generation.

Complementary Tax Reforms Supporting MSMEs

Alongside the MCGS-MSME scheme, the government has taken several tax-related initiatives to simplify compliance and reduce the financial burden on small businesses. These include:

1. Presumptive Taxation under Section 44AD and 44AE: Small businesses and transport operators can declare income on a presumptive basis, reducing the need for complex bookkeeping.

2. Relaxation under Section 44AB: Threshold limits for mandatory tax audits have been increased, reducing the compliance cost for many MSMEs.

3. Removal of TCS on Sale of Specified Goods: Section 206C has been amended to remove Tax Collected at Source obligations in specific cases, simplifying business transactions.

4. Rationalisation of TDS Rates: Reduction and clarification of TDS (Tax Deducted at Source) rates help small businesses manage their cash flows better.

5. Proposed New Income-Tax Bill, 2025: A simplified and more transparent tax framework is being proposed to support ease of doing business.

These initiatives, combined with the MCGS-MSME scheme, create a more supportive ecosystem for MSMEs in India.

Impact on India’s Manufacturing Sector

Currently, the manufacturing sector contributes 17% to India’s GDP and employs over 27.3 million workers. MSMEs form the backbone of this sector, and access to large-scale credit can help them scale production and integrate into the global supply chain, especially in sectors like electronics, textiles, and auto components.

Experts such as Mr. Deep Kapuria, an international trade consultant, have praised the timing of the scheme, especially in the post-pandemic phase when many MSMEs are focusing on recovery and expansion. He also emphasized that this scheme will drive component manufacturing relocation to India, enhancing the country’s position as a global manufacturing hub.

Conclusion

The Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME) is a transformative policy initiative that can reshape India’s MSME sector. With a 60% government-backed guarantee on loans up to Rs.100 crore, the scheme opens new doors for small and medium businesses to invest in high-quality machinery and technology, which is essential for scaling operations and competing globally.

By offering an institutional safety net to financial lenders and simplifying the process through the NCGTC platform, the scheme promotes confidence in MSME lending. In parallel, tax reforms and proposed legislation further enhance the business environment, making it easier for MSMEs to operate and grow.

FAQs

Q1. What is the Mutual Credit Guarantee Scheme (MCGS) for MSMEs?

Ans. The Mutual Credit Guarantee Scheme (MCGS-MSME) is a government-backed initiative launched to help Micro, Small, and Medium Enterprises access large credit facilities. Under this scheme, MSMEs can avail loans up to Rs.100 crore with a 60% guarantee coverage provided by the National Credit Guarantee Trustee Company (NCGTC). The credit is primarily meant for purchasing equipment and machinery.

Q2. Who is eligible to apply under the MCGS-MSME scheme?

Ans. To be eligible for the scheme:

The business must be registered as an MSME with a valid Udyam Registration Number.
It should not be classified as an NPA (Non-Performing Asset) with any lender.
At least 75% of the total project cost must be allocated towards equipment or machinery purchase.

Q3. What is the maximum loan amount covered under the MCGS scheme?

Ans. The maximum loan amount that can be covered under the Mutual Credit Guarantee Scheme for MSMEs is Rs.100 crore. Out of this, 60% of the sanctioned loan amount is backed by the government as a credit guarantee.

Q4. Which financial institutions are eligible to provide loans under MCGS-MSME?

Ans. Eligible Member Lending Institutions (MLIs) under the scheme include:

Scheduled Commercial Banks (SCBs)
All India Financial Institutions (AIFIs)
Non-Banking Financial Companies (NBFCs)

These institutions must sign an agreement with NCGTC to participate in the scheme.

Q5. What is the duration or validity of the MCGS scheme?

Ans. The MCGS-MSME scheme will be in force for four years from the date of issuing operational guidelines or until the cumulative guarantee amount of Rs.7 lakh crore is reached, whichever comes earlier.

Q6. How can MSMEs apply for loans under this scheme?

Ans. MSMEs need to approach an eligible bank or NBFC (MLI) and apply for a loan. Once the loan is sanctioned, the lender submits the details to the NCGTC portal. After verification and payment of the guarantee fee, the NCGTC confirms the guarantee, and the loan is disbursed to the MSME.

Q7. Can MSMEs use the loan for working capital or only for machinery purchase?

Ans. No, the scheme is specifically designed for capital investments in equipment and machinery. At least 75% of the project cost must be used for these purposes. Loans for working capital or other expenses are not covered under this guarantee.