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Government Plans New Credit Guarantee Scheme for MSMEs, Inspired by ECLGS

The scheme shall provide a risk-free credit guarantee of up to Rs. 100 crores to MSMEs in the manufacturing business to boost the capital expenditure in the economy.

January 22, 2025 | Team Brydgework

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The Union Government declared recently that it is working on the credit guarantee scheme for the MSME sector that was announced in the Budget statement in July 2024, intending to implement the scheme in the Budget for the year 2025-26. The scheme shall provide a risk-free credit guarantee of up to Rs. 100 crores to MSMEs in the manufacturing business to boost the capital expenditure in the economy.

The scheme is being modelled as per the Emergency Credit Line Guarantee Scheme (ECLGS), that had been announced in May 2020 as part of the Ayushman Bharat package as a relief measure against COVID-19 pandemic-induced lockdowns and economic disruption. A credit guarantee corpus of Rs. 3 lakh crore was created under the scheme to provide funds to MSMEs to sustain their business operations without the need for collateral or 3rd-party guarantee. MSMEs who wished to be beneficiaries under the scheme had to pay only an upfront guarantee fee and an annual guarantee fee on the reducing loan balance.

MSMEs are important for driving the country’s growth, as they provide employment to over 23 crore people, contribute approximately 30% to the nation’s GDP, and export 45%. The government has devised a host of schemes to support the MSME Landscape in the country since the onset of the COVID-19 pandemic, such as ZED Certification, Start-up India, and others. These provide MSMEs with assistance and support on various aspects of Business, such as improving the quality of operations, providing funds, improving brand awareness and visibility, simplifying compliance procedures and requirements, etc. The announcement of this scheme is another welcome move from the government, contributing to the Ease of Doing Business (EoDB) in the country. 

To learn more about the initiatives taken by the government to support the MSME sector, visit our insightful articles on our blog page. To learn more about the MSME landscape in India, click here.