The Finance Minister of India announced a new scheme for MSME that will be presented in the Cabinet soon. The scheme will provide collateral-free term loans to MSMEs. So, the MSMEs looking for funds to expand, grow, or support their business can check the details here.
MSME Loan
Finance Minister Nirmala Sitharaman attended the National MSME Cluster Outreach Program held in Bengaluru on 09 November 2024. During her speech, she mentioned a new guarantee scheme for MSME loans. The FM confirmed that the scheme will soon go to the cabinet for approval and facilitate term loans to MSMEs.
FM has said the new credit guarantee scheme will boost lending for micro, small, and medium enterprises (MSMEs) by 35% in the current Fiscal year. This will ensure that no MSMEs are denied credit or funds, eventually supporting the businesses’ stay strong.
According to the FM, the model of the new credit guarantee will be rolled out soon by the public sector banks and this model will help the MSMEs to receive ₹100 crore collateral-free loans. The scheme will resolve the issue of MSMEs where they don’t get term loans for machinery and plants.
How will the new credit guarantee MSME loans will work?
The Emergency Credit Line Guarantee Scheme was a success as it saved millions of MSMEs during the pandemic from sinking through liquidity. As per the reports, the ECLGS has granted over ₹2.68 lakh crore to 1.19 borrowers till December 2023.
The success of the scheme has led the government to offer new term loans for machinery and to set up modern plants which they generally do not get facilitated with capital loans.
The new scheme will work on pooling of credit risks of MSMEs in the manufacturing sector who wish to establish modern plants or need new machinery. Under the scheme, the government will provide guarantee funds to each applicant which covers up to ₹100 crore or larger.
The owners of MSMEs must pay an upfront guarantee fee and an annual guarantee fee to reduce the loan balance.
The banks will do the credit assessment themselves so that each bank will have its own model to grant the MSME loans. The eligibility ot requirement may differ from in some banks based on the model.
The FM also confirmed that e-commerce trade hubs are formed in partnership with private parties to facilitate seamless export-related services and foreign trade.
What will the MSME loans offer?
The FM said the new scheme is a part of five key proposals she announced during the budget speech to extend their support to MSMEs. Let’s see what the new scheme has to offer to the MSMEs:
- During the interim budget, she has confirmed that they will formulate a package to regulate changes, cover finances, and implement technology to support the MSMEs to grow and stand strong on a global scale.
- According to the details revealed by the FM, around ₹100 crores will be guaranteed under the credit scheme even when the borrower asks to borrow more because for the first ₹100 crores the guarantee will be provided, hence you don’t have to present the third party guarantee to pass the loan.
- With this practice, the borrowers do not require a third-party guarantee and no collateral to receive the guarantee credit under the scheme.
What’s the target and government estimate under the proposed MSME collateral-free loan scheme?
As the FM addressed the MSME’s other stakeholders at the National MSME Cluster Outreach Program, the minister said they have set the target where they expect the overall credit target to be granted to MSMEs to ₹5.7 lakh crore by adding the ₹1.5 lakh crore by 2025.
The minister says it would be better if banks keep boating and set a target of ₹6.2 lakh crore for the new FY and ₹7 lakh crore for FY27. The government plans to achieve the lending target and express its concern over public sector banks’ growth in lending.
According to reports, the FM plans encourage the PSBs to lead and lend to the MSMEs as over the years the PSBs have seen only a 9.2% boost in granting loans to MSMEs whereas non-banking financial companies have a 39% boost, and private sector banks have 25% boost in the last two years.
With these concerns and targets, the union minister has guaranteed ₹100 crore for MSMEs through the new scheme which will soon go over the Cabinet bench for approval.
