The indian government’s introduction of the Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME) aims to strengthen the backbone of the economy—micro, small, and medium enterprises—by providing 60% guarantee coverage for loans up to ₹100 crore. This move, on paper, is a significant step toward making credit accessible for MSMEs, particularly for capital-intensive investments in machinery and equipment. However, the real question remains—does this scheme truly benefit the common man, or is it just another policy that sounds promising but falls short in execution?

The Potential Impact on MSMEs

India’s MSME sector is a major contributor to employment and GDP growth, accounting for about 17% of the nation’s GDP and employing over 27.3 million workers. One of the biggest hurdles for MSMEs is access to affordable credit. Traditional lending institutions often hesitate to extend large loans due to high perceived risks. With the NCGTC offering a 60% guarantee, banks and financial institutions may feel more confident in lending to MSMEs.

For businesses that rely on heavy machinery and equipment, this scheme can be a game-changer. The condition that 75% of the project cost must be for equipment/machinery ensures that funds are used for asset creation rather than operational expenses, theoretically strengthening the financial health of MSMEs in the long run.

Challenges in Implementation

Despite the potential benefits, several challenges must be considered:

1. Eligibility Criteria & Complex Paperwork
   MSMEs need a valid Udyam Registration Number, and many small businesses, particularly in rural areas, struggle with bureaucratic formalities. Will banks truly ease the process, or will red tape continue to hinder access?

2. High Annual Guarantee Fee
   While the first year has zero fees, the 1.5% annual guarantee fee for the next three years and 1% thereafter could still be a burden on small businesses with low margins. Will MSMEs be able to bear this additional cost over time?

3. Banking Sector’s Willingness to Lend
   Even with a government-backed guarantee, banks might still hesitate to lend freely, fearing defaults. Past government-backed loan schemes have often failed to reach the smallest businesses due to conservative lending practices.

4. Limited Duration & Cumulative Guarantee Cap
   The scheme is valid for four years or until ₹7 lakh crore worth of guarantees are issued. Once this limit is reached, MSMEs might again data-face difficulties in securing loans. This raises concerns about long-term financial sustainability.

Does It Benefit the Common Man?

The scheme could indirectly benefit the common worker and small business owner by:

• Generating employment if MSMEs expand.
• Encouraging manufacturing sector growth, leading to increased economic activity.
• Reducing reliance on informal lending, which often comes with exorbitant interest rates.

However, if implementation hurdles remain, the scheme could become just another policy that helps only a fraction of MSMEs—mostly the well-established ones that already have access to credit. The smaller, informal businesses that truly struggle with funding might still find it difficult to benefit.

Final Thoughts

The Mutual Credit Guarantee Scheme for MSMEs has the potential to revitalize small businesses, but only if the government ensures easy access, transparent processes, and minimal bureaucratic delays. Otherwise, it risks becoming yet another well-intentioned policy that never truly reaches the ones who need it the most.