Government modifies Mutual Credit Guarantee Scheme to Support MSME Manufacturers and Exporters in line with Budget 2025-26

**Executive Summary** On March 21, 2026, the Ministry of Finance announced modifications to the Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME) to align with Budget 2025-26. The updates aim to expand eligibility to the service sector, reduce the compliance burden, and provide specific incentives for exporter MSMEs. The scheme supports credit facilities up to ₹100 crore for the purchase of plant and machinery, with modified refund structures for upfront contributions and a guarantee tenure of 10 years. **Key Points / Main Content** **General Modifications to MCGS-MSME** * **Upfront Contribution:** The 5% upfront contribution is now refundable at 1% per year starting from the 4th year, provided the loan account performance is satisfactory. * **Expanded Eligibility:** Service sector MSMEs are now included in the scheme alongside manufacturers. * **Project Cost Requirements:** The minimum project cost allocation for machinery and equipment has been reduced to 60%, down from the previous requirement of 75%. * **Guarantee Tenure:** All guarantees under the scheme are set to expire after a period of 10 years. * **Core Coverage:** The scheme continues to provide 60% guarantee coverage by the National Credit Guarantee Trustee Company Limited (NCGTC) for loans up to ₹100 crore. **Special Provisions for Exporters** * **Eligibility Criteria:** Open to profitable units that have exported at least 25% of their sales turnover in each of the previous three financial years and met export realization conditions. * **Loan and Coverage:** Exporters are eligible for a guaranteed loan amount of ₹20 crore with a higher guarantee coverage of 75% in the event of default. * **Fee Structure:** The guarantee fee is waived for the first year; thereafter, a fee of 0.50% of the outstanding loan is charged annually. * **Exporter Contributions:** Upfront contribution is set at 2% of the loan amount (capped at ₹40 lakhs), with 1% refundable in both the 4th and 5th years of the guarantee period. **Impact Analysis** **MSME Manufacturers and Service Providers** **Impact** These entities benefit from expanded eligibility and lower entry barriers, as the required investment in machinery relative to total project cost has been lowered. The refundable nature of the upfront contribution improves long-term liquidity for units with satisfactory loan performance. **Action Required** Interested MSMEs should review the detailed modified guidelines on the NCGTC website and approach Member Lending Institutions (MLIs) to apply for credit facilities for equipment or machinery. **Exporter MSMEs** **Impact** Exporters receive targeted financial incentives, including higher guarantee coverage (75%) and a first-year waiver on guarantee fees, facilitating easier access to credit for global competitiveness. **Action Required** Eligible exporters must ensure they have documented proof of profitability and meeting the 25% export turnover threshold for the last three financial years to avail of the specialized provisions. **Member Lending Institutions (MLIs)** **Impact** MLIs receive 60% to 75% guarantee coverage from the NCGTC, reducing the risk associated with high-value loans (up to ₹100 crore) for MSME machinery purchases. **Action Required** MLIs must update their internal credit approval processes to reflect the revised eligibility criteria, machinery cost thresholds, and refundable contribution structures.

Key Entities Referenced