New credit cover for MSMEs may be extended to select services

The Indian Government is exploring extending its Mutual Credit Guarantee Scheme for MSMEs to specific services sectors that support local manufacturing, aiming to bridge the higher credit gap faced by services. With the services sector facing a higher credit gap, the Centre is considering extending the credit guarantee cover under the newly launched Mutual Credit Guarantee Scheme for MSMEs in manufacturing, to select services sectors that support local production. The scheme, launched in January 2025, provides a 60% guarantee coverage by National Credit Guarantee Trustee Company Limited (NCGTC) to member lending institutions (MLIs) for credit facilities up to Rs.100 crores to eligible MSMEs for the purchase of equipment or machinery. While an increased credit supply to MSMEs is in evidence, a Small Industries Development Bank of India study has estimated that the sector still has an addressable credit gap of about 24% or around Rs 30 lakh crores. The gap is higher in the services sector at 27%. It has suggested specific policy initiatives to reduce the credit gap in these segments. “Some requests have come after we have launched the scheme to consider services also. We can extend it to some specific types of services that support the original objective of (boosting) manufacturing,” an official told FE, adding that no final decision has been taken.

Hospitals and hotels invest a lot in fixed assets like machinery, appliances and specialized beds, which are largely supplied by local manufacturers. The Centre is targeting up to Rs 1.5 lakh crores credit guarantee cover in 2025-26 for MSMEs under the Mutual Credit Guarantee Scheme. Even though the scheme was approved by the Cabinet for a period of four years or till a cumulative guarantee of Rs 7 lakh crores is issued, whichever is earlier, both the amount and period can be extended, if necessary, sources said. The scheme facilitates collateral-free loans by banks and financial institutions to MSMEs, who are in need of debt capital for their expansion and growth.
The guarantee fee on loan under the scheme is ‘nil’ during the year of sanction, it would be 1.5% per annum of the loan outstanding for the next three years and 1% of the loan outstanding thereafter. The MSME sector, which contributes approximately 29% to India’s GDP, accounts for 40% of exports and employs over 60% of the workforce. Despite its critical role, the composition of the sector is disproportionately weighted: 97% of registered MSMEs are micro enterprises, 2.7% are small and only 0.3% are medium enterprises.

Source : https://www.financialexpress.com/business/sme/new-credit-cover-for-msmes-may-be-extended-to-select-services/3864731/