Credit support schemes for MSMEs

• Micro, Small, and Medium Enterprises (MSMEs) form the backbone of India’s industrial economy, accounting for approximately 35.4 per cent of manufacturing, around 48.58 per cent of exports, and 31.1 per cent of GDP in the country.

• With over 7.47 crore enterprises employing over 32.82 crore persons, the sector holds its position as the second-largest employer after agriculture. 

• A large share of these enterprises operates in rural and semi-urban areas. 

• They support local value chains, promote non-farm employment, and contribute to regional economic development.

• Given their importance, strengthening MSMEs in rural and semi-urban areas is critical. 

• This helps promote inclusive growth, improve productivity, and integrate small enterprises into national and global supply chains.

• Globally, MSMEs make up about 90 per cent of businesses and are responsible for over 50 per cent of the total global employment.

• With India’s manufacturing sector positioned for greater global integration, MSME sector’s role is critical in enabling effective supply-chain participation, fostering local value addition, and supporting inclusive regional growth.

• Despite expanding credit footprints and rising digital integration, access to formal credit remains a binding constraint for many micro-enterprises due to limited collateral and documentation readiness, as is generally the case worldwide. 

• This challenge was also highlighted in the World Bank’s Financial Sector Assessment Report for India (2025), which noted that 27 per cent of MSMEs identify finance as their biggest obstacle. 

• Women-owned MSMEs, in particular, account for a small fraction of commercial credit, though formalisation under Udyam and targeted credit guidelines are gradually addressing this gap. 

• Furthermore, MSME credit has maintained a positive trajectory in recent times, bolstered by several government interventions aimed at enhancing credit flow to the sector.

Credit and Financial Support Measures

1) Credit Guarantee Scheme (CGS)

The Ministry of MSME implements the Credit Guarantee Scheme (CGS) through the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). It is a joint initiative of the government and the Small Industries Development Bank of India (SIDBI). The scheme facilitates the flow of collateral-free and third-party guarantee-free credit to Micro and Small Enterprises (MSEs). It enables first-generation and underserved entrepreneurs to access institutional finance.

As per the Union Budget 2025-26, the ceiling of guarantee coverage under CGS has been enhanced from Rs 5 crore to Rs 10 crore for banks. The revised guidelines are applicable to all guarantees approved on or after April 1, 2025. Additionally, a special provision has been introduced for MSEs promoted by transgender entrepreneurs. These enterprises are eligible for a 10 per cent concession in guarantee fees along with enhanced guarantee coverage of up to 85 per cent, effective from March 1, 2025.

2) Self-Reliant India (SRI) Fund                       

The Self-Reliant India (SRI) Fund was launched to provide Rs 50,000 crore in equity support to MSMEs through a Fund of Funds mechanism. The Fund comprises Rs 10,000 crore from the government and Rs 40,000 crore to be raised through private equity and venture capital funds. It operates through a mother fund-daughter fund structure, managed by NSIC Venture Capital Fund Limited (NVCFL), a SEBI-registered Category-II Alternative Investment Fund.

As of November 2025, the SRI Fund has supported 682 MSMEs with investments worth Rs 15,442 crore. Union Budget 2026-27 has provided an additional Rs 2,000 crore to the Self-Reliant India Fund. This is to keep supporting micro enterprises with risk capital.

3) Emergency Credit Line Guarantee Scheme (ECLGS)

The ECLGS supports eligible MSMEs and business enterprises in meeting their operational liabilities. It is aimed at helping them restart their businesses in the context of disruptions caused by the COVID-19 pandemic. On May 6, 2026, the Union Cabinet approved ECLGS 5.0 scheme to provide additional credit support to MSMEs and airlines during the current challenging period.

4) Prime Minister’s Employment Generation Programme (PMEGP)

PMEGP is a flagship credit-linked subsidy scheme of the Ministry of MSME. It is implemented nationally through the Khadi and Village Industries Commission (KVIC). At the state level, it operates via KVIC offices, KVIBs, and District Industries Centres (DICs). The scheme aims to generate self-employment opportunities by supporting the establishment of new micro enterprises in non-farm sectors.

The maximum project cost eligible for Margin Money subsidy is Rs 50 lakh for the manufacturing sector and Rs 20 lakh for the service/business sector. Margin Money Subsidy is a government-funded financial assistance provided as a back-ended subsidy on bank loans to set up new micro-enterprises. Under the scheme, subsidy varies based on the beneficiary category and location. For special categories, the subsidy is 35 per cent of the project cost in rural areas. It is 25 per cent in urban areas.

From FY 2021-22 to FY 2025-26, PMEGP has supported the establishment of over 5.8 lakh projects. Bank loans worth more than Rs 60,000 crore have been sanctioned. During the same period, margin money subsidy of over Rs 13,450 crore has been disbursed to over 4 lakh units. This has resulted in estimated employment generation of nearly 36.3 lakh persons.

5) Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME)

The government has introduced Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME), a government-backed initiative designed to help MSMEs access loans to grow their businesses. This scheme offers a credit guarantee, making it easier for MSMEs to obtain loans, especially for purchasing essential equipment and machinery. The scheme provides credit guarantee cover to lenders (scheduled commercial banks, All India financial institutions, NBFCs for their term loans up to Rs 100 crore to MSMEs for their projects involving purchase of equipment/machinery.

(The author is a trainer for Civil Services aspirants.)