REGULATORY · COMPETITIVE · INDIA
Government modifies Mutual Credit Guarantee Scheme for MSMEs
Change
The Finance Ministry revised the Mutual Credit Guarantee Scheme for MSMEs and NCGTC operationalised the revised scheme on February 24, 2026.
Why it matters
The Finance Ministry modified the Mutual Credit Guarantee Scheme for MSMEs and the National Credit Guarantee Trustee Company Ltd. operationalised the revised scheme on February 24, 2026. Credit guarantees under the scheme now expire after 10 years. Equipment and machinery cost coverage is reduced to 60% of project cost (from the earlier 75%). The scheme allows a 5% upfront borrower contribution to be collected in tranches after the fourth year and extends eligibility to include the services sector, with exporters required to have exported at least 25% of turnover in each of the previous three financial years and meet export realisation conditions.
Implications
- · Equipment financing requires higher borrower equity for machinery purchases due to the 60% coverage cap, increasing upfront capital needs for affected projects.
- · Guarantee tenors are limited to 10 years, constraining longer-term financing structures and affecting lender risk exposure and amortisation profiles.
- · Export-focused eligibility adds documentary compliance requirements for proving three consecutive years of ≥25% export turnover and export realisation.
- · Staggered collection of the 5% contribution after year four alters borrower cash-flow timing and the net guarantee exposure borne by guarantors and lenders.
Who is affected
- · MSME manufacturers
- · MSME exporters
- · Services-sector MSMEs
- · Lenders providing equipment/project finance to MSMEs
What to watch
- · Operationalisation effective February 24, 2026
Source
Topics
Law & Public Safety Compliance Finance & Banking Banking Regulation Financial Services