FM proposes credit guarantee scheme of Rs 100 crore for MSMEs

FMbudget1

To support Micro, Small and Medium Enterprises, finance minister Nirmala Sitharaman on July 23 during budget 2024 proposed credit guarantee scheme of Rs 100 crore to this sector.

“A separately constituted self-financing guarantee fund will
provide, to each applicant, guarantee cover up to ` 100 crore, while the loan
amount may be larger. The borrower will have to provide an upfront
guarantee fee and an annual guarantee fee on the reducing loan balance,” finance minister said during budget speech.

Further she said the government has formulated package to finance technology support to MSME.

Finance Minister said the government have formulated a package covering financing, regulatory changes and technology support for MSMEs to
help them grow and also compete globally, as mentioned in the interim
budget.

For facilitating term loans to MSMEs for purchase of machinery and equipment without collateral or third-party guarantee, a credit guarantee
scheme will be introduced, budget speech said.

Sitharaman said public sector banks will build their in-house capability to assess MSMEs for credit, instead of relying on external assessment. They will also take a lead in developing or getting developed a new credit assessment model, based on the scoring of digital footprints of MSMEs in the economy.

"This is expected to be a significant improvement over the traditional assessment of credit eligibility based only on asset or turnover criteria. That will also cover MSMEs without a formal accounting system," she added.

A new mechanism for facilitating continuation of bank credit to MSMEs during their stress period. While being in the ‘special mention account’ (SMA) stage for reasons beyond their control, MSMEs need credit to continue their business and to avoid getting into the NPA stage. Credit availability will be supported through a guarantee from a government promoted fund, finance minister said.