Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME) — Collateral-Free Term Loans up to ₹100 Crore for Machinery
Video Explanation & Insights
MCGS-MSME: ₹100 crore collateral-free loan for MSMEs — big update
3 videos on this topic
A guarantee scheme for large machinery loans
The Mutual Credit Guarantee Scheme for MSMEs was announced in the Union Budget 2024-25 and operationalised by the Department of Financial Services through the National Credit Guarantee Trustee Company (NCGTC) — the same trustee that runs CGTMSE and the Credit Guarantee Scheme for Startups. Where CGTMSE covers loans up to ₹10 crore and CGSS up to ₹20 crore, MCGS-MSME guarantees term loans of up to ₹100 crore to a single MSME for the purchase of plant, machinery and equipment, without collateral or third-party guarantee.
The scheme exists to let MSMEs install large machines and scale manufacturing — and, after the revision the video discusses, service-sector MSMEs buying equipment as well. Because the loan amount is large and unsecured, the borrower pays a refundable upfront contribution of 5% of the loan and an annual guarantee fee, and NCGTC covers 60% of the lender's loss. Only term loans qualify; a cash-credit limit is not covered.
Key features
| Feature | Provision | Notes |
|---|---|---|
| Eligible borrower | Udyam-registered MSME, not an NPA with any lender | Manufacturing; services added by the revision discussed in the video |
| Purpose | Term loan for purchase of plant, machinery or equipment | Project cost may exceed ₹100 crore; the guaranteed loan is capped at ₹100 crore |
| Equipment share | Machinery / equipment to be at least 60% of project cost (originally 75%) | As per the revision the video describes |
| Guarantee coverage | 60% of the amount in default | 75% for exporter MSMEs on loans up to ₹20 crore, per the revision |
| Upfront contribution | 5% of the loan amount, refundable as the loan performs | Returned in stages once repayment is satisfactory |
| Guarantee fee | Nil in the year of sanction; 1.5% p.a. for the next three years; 1% p.a. thereafter | First-year fee waived for exporters, per the revision |
| Repayment | Up to 8 years, with a moratorium of up to 2 years | Guarantee cover for up to 10 years per the revision |
| Implementing agency | NCGTC, through member lending institutions | Scheduled commercial banks and eligible NBFCs |
MCGS-MSME against CGTMSE and CGSS
| CGTMSE | CGSS (startups) | MCGS-MSME | |
|---|---|---|---|
| Maximum guaranteed loan | ₹10 crore | ₹20 crore | ₹100 crore |
| Facility type | Term loan and working capital | Term loan, working capital, venture debt | Term loan only, for machinery / equipment |
| Guarantee coverage | Up to 75–85% by category | 75–85% | 60% (75% for exporters) |
| Borrower cost | Annual guarantee fee, about 0.37–2% | Annual guarantee fee | 5% refundable upfront contribution plus annual fee |
| Who | Micro and small enterprises | DPIIT-recognised startups | Any Udyam MSME buying equipment |
What the bank and NCGTC need
Sanction to guarantee cover
- 1Step 1 — Eligibility and structure: Udyam MSME, equipment-led project, term-loan requirement up to ₹100 crore; equipment share tested against the 60% rule.
- 2Step 2 — Appraisal: DPR, CMA and projections submitted to a member lending institution; credit committee sanctions the term loan under MCGS-MSME.
- 3Step 3 — Guarantee: the bank lodges the loan with NCGTC; the borrower's 5% upfront contribution is collected; guarantee cover is issued.
- 4Step 4 — Disbursement against equipment invoices; moratorium and repayment as sanctioned; annual guarantee fee paid.
- 5Step 5 — Performance: the upfront contribution is refunded in stages as the loan performs; guarantee stays in force for the covered period.
Where proposals stumble
- •Asking for a cash-credit limit under the scheme — only term loans for equipment qualify.
- •Equipment below the required share of project cost because civil works dominate.
- •An NPA or a weak CIBIL profile among promoters or group entities.
- •Under-providing for the 5% upfront contribution and guarantee fees in the project cost.
- •Expecting CGTMSE-level fees; MCGS-MSME costs more because the loan is far larger and unsecured.
MCGS-MSME: questions borrowers ask
A guaranteed term loan of up to ₹100 crore per MSME for plant, machinery or equipment. The project can be larger; the guarantee applies to the loan up to ₹100 crore.
No collateral or third-party guarantee is required; NCGTC provides 60% guarantee cover (75% for exporters on loans up to ₹20 crore, per the 2026 revision).
A refundable contribution of 5% of the loan amount paid by the borrower at the start, returned in stages as the loan performs — the scheme's mutual element.
Yes, for equipment purchase, following the revision the video discusses; originally the scheme was for manufacturing MSMEs.
No. Use CGTMSE (up to ₹10 crore) or CGSS (up to ₹20 crore for startups) for working-capital limits.
No guarantee fee in the year of sanction, 1.5% a year for the next three years and 1% a year thereafter, plus the refundable 5% upfront contribution; exporters get the first-year fee waived per the revision.
NCGTC, through scheduled commercial banks and eligible NBFCs as member lending institutions.