Explained: Rs 3 Lakh Crore Credit Guarantee Scheme For MSMEs That Union Cabinet Just Approved 

The Union Cabinet on Wednesday (May 20) approved additional funding of up to Rs 3 lakh crore at a concessional rate of 9.25 per cent through the Emergency Credit Line Guarantee Scheme (ECLGS) to help Micro, Small and Medium Enterprises (MSMEs) sector reeling under the impact of coronavirus pandemic.

The ECLGS was unveiled as part of the Rs 20 lakh crore comprehensive package announced by finance minister Nirmala Sitharaman last week.

Here is a key summary of the scheme

1.Interest Rate: Under this scheme, MSMEs will get guaranteed emergency credit at interest rates of up to 9.25 per cent from banks. Similarly, interest rates on collateral-free loans has been been capped at 12 per cent for loans extended by non-banking financial companies (NBFCs) to MSMEs.

As on date, banks in India charge interest between 11 to 16.25 per cent while for NBFC, rate of interest ranges between 10 to 30 per cent.

2.100 per cent Government Guarantee: 100 per cent guarantee coverage will be provided for the borrowers under the scheme by National Credit Guarantee Trustee Company Limited (NCGTC).

3. Funding The Scheme: The Union Government will provided a corpus of ₹41,600 crore, spread over four years starting with the current fiscal for setting up a Guaranteed Emergency Credit Line (GECL) under this scheme.

4. Scheme Start And End Date: The scheme would be applicable to all loans sanctioned under the GECL facility during the period from the date of announcement of the scheme to October 31, or till an amount of ₹3 lakh crore is sanctioned under the GECL, whichever is earlier.

5 Eligibility: All MSMEs with an annual turnover of up to Rs 100 crore and having outstanding credit of up to Rs 25 crore as on February 29 this year would be eligible under the scheme.

6. Credit Limit: MSMEs can avail up to 20 per cent of the their outstanding credit subject to the above mentioned limit for working capital or additional term loans.

7.Moratorium On Principal: The loans will have a moratorium of a year on the principal amount, and must be repaid in four years thereafter.

8. MSME Defintion: While announcing the first tranche of the Rs 20 Lakh crore economic package, Finance Minister Nirmala Sitharaman announced a change in the definition of MSMEs.

According to the revised definition, any firm with investment up to Rs 1 crore and turnover under Rs 5 crore will be classified as “micro”. A company with investment up to Rs 10 crore and turnover up to Rs 50 crore will be classified as “small” and a firm with investment up to Rs 20 crore and turnover under Rs 100 crore will be classified as “medium”.

On Tuesday (May 19), Union Minister for MSMEs Nitin Gadkari said that government is considering to revise the definitional criteria for medium units by enhancing the investment and turnover limits to up to Rs 50 crore and Rs 200 crore respectively.

The previous criteria for classifying enterprises in the "medium" category was investment up to Rs 10 crore and turnover of up to Rs 5 crore.

Given the critical role of the MSME sector in the economy and in providing employment, the government expects the proposed scheme to provide immediate relief to the sector by incentivising banks and other financial institutions to provide additional credit of up to Rs 3 lakh crore to the sector at low cost, thereby enabling MSMEs to meet their operational liabilities and restart their businesses.

When announcing the economic package, Union finance minister Nirmala Sitharaman said that 45 Lakh MSMEs can resume business activity and safeguard jobs through this scheme.

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