Govt Eases MSME Credit Rules to Boost Manufacturing, Exports

According to the Ministry of Finance on Saturday, these adjustments aim to increase credit availability for purchasing plants and machinery. The ministry stated that the modifications address feedback received from MSMEs and lending institutions to make the credit facility more accessible and responsive to industry needs.

Under the revised guidelines, the government expanded the scope of the scheme to include MSMEs operating in the service sector. One significant change involves the minimum project cost allocated toward machinery and equipment, which the ministry reduced to 60 per cent of the total project cost from the earlier requirement of 75 per cent. This adjustment allows businesses more flexibility in how they fund capital for their expansion projects.

The government also fixed the guarantee tenure to expire after a period of ten years, ensuring long-term support for equipment financing.

The financial terms regarding upfront contributions underwent changes to improve liquidity for borrowers. The ministry noted that the 5 per cent upfront contribution is now refundable, with 1 per cent returned annually starting from the fourth year of the loan, "subject to satisfactory performance of loan account." This measure is designed to incentivize fiscal discipline while easing the long-term financial burden on small business owners.

Special provisions were introduced specifically for the export sector to encourage global competitiveness. Eligible units must be profitable and have "exported at least 25 per cent of their sales turnover in each of previous 3 financial years."

For these entities, the guaranteed loan amount is set at Rs 20 crore, with the guarantee coverage extending to "75 per cent of the amount in default." The ministry confirmed that while the first-year guarantee fee for exporters is waived, a fee of 0.50 per cent on the outstanding loan amount applies in subsequent years.

The upfront contribution for exporters is fixed at 2 per cent of the loan amount, with a maximum cap of Rs 40 lakh.

In line with the general MSME terms, this contribution is refundable at a rate of 1 per cent each in the fourth and fifth years of the guarantee period.

"MSMEs contribute around 30% to the GDP and over 45% to the exports of India and give employment to more than 35 crore workers. Achieving the vision of "Viksit Bharat 2047" requires strong, globally competitive, and sustainable MSMEs. The modifications in MCGS-MSME scheme are expected to facilitate increased availability of credit for purchase of Plant and Machinery / Equipment by MSMEs, including exporter MSMEs, and give a major boost to manufacturing and export sector in India," the Ministry said in a statement.

- ANI