India's Finance Ministry modifies Mutual Credit Guarantee Scheme for MSME manufacturers and exporters
Bank and non-bank lender credit teams must collect 5% upfront and apply 60% equipment cap
Change
India's Finance Ministry has revised the Mutual Credit Guarantee Scheme for micro, small and medium enterprises (MCGS-MSME) to require a 5% borrower contribution payable in tranches after the fourth year and to make guarantee cover expire ten years after issuance.
Why it matters
Maximum guarantee cover for equipment and machinery is now limited to 60% of project cost, shrinking the portion of capex eligible for scheme backing. The services sector has been added to scheme eligibility, bringing service-sector MSME loans within the same contribution and ten‑year expiry constraints.
Implications
- — Credit teams at banks and non-bank financial companies (NBFCs) must obtain a signed borrower schedule capturing the 5% contribution payable in tranches after year four before disbursing MCGS-MSME-backed loans — loans disbursed without that schedule will not qualify for the scheme guarantee.
- — Risk and compliance teams at banks and guarantee-providing agencies must cap guarantee-eligible equipment exposure at 60% of project cost in credit-approval and reporting systems immediately — any equipment financing above that cap will remain uncovered by the MCGS-MSME.
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Source
View on The Hindu