New credit guarantee scheme to boost small manufacturing industries in India

India raises MUDRA loan limit to $24,000 (₹2m) for reliable borrowers.

India has announced a credit guarantee scheme for small industries in the manufacturing sector, which aims to assist medium and small enterprises (MSMEs) in purchasing machinery and equipment without the need for collateral.

Under the scheme, a self-financing guarantee fund will be set up to provide a guarantee cover of up to about $12m (₹1b) for each applicant. The loan amount may surpass this limit, Finance Minister Nirmala Sitharaman said during the announcement of the federal budget for the 2024-25 fiscal year.

Borrowers will be required to pay an upfront guarantee fee and an annual guarantee fee based on the reduced loan balance.

The government is emphasising support for MSMEs as they play a vital role in job creation, fostering entrepreneurship, and contributing to the nation's economic growth whilst alleviating poverty.

Sitharaman further mentioned that the government will ensure bank credit for stressed MSMEs through a guarantee from a government-promoted fund. Loans that show early signs of distress, known as Special Mention Account (SMA) loans, will be supported to prevent them from becoming non-performing assets.

The government has also increased the limit for MUDRA loans to $24,000 (₹2m) for entrepreneurs who have successfully repaid their previous loans.

MUDRA loans are provided to micro-enterprises, startups, and small businesses in India with favourable repayment terms and low interest rates.