The Mutual Credit Guarantee Scheme framework can help an eligible micro, small or medium enterprise seek a sizeable term loan for plant, machinery or equipment without asking the lender to carry the entire default risk. Under the mutual credit guarantee scheme, the National Credit Guarantee Trustee Company Limited provides guarantee support to a registered Member Lending Institution, or MLI. The borrower still has to satisfy the lender’s credit appraisal and repay the full debt.
The rules changed materially in March 2026. Service-sector MSMEs are now included, the minimum machinery or equipment component has been reduced from 75% to 60% of project cost, the standard 5% upfront contribution can be refunded in stages subject to satisfactory loan performance, and the guarantee now expires after ten years. Qualifying exporter MSMEs also receive separate terms.
This guide uses the revised framework, explains the difference between a guarantee and a subsidy, and separates central scheme conditions from lender-specific loan policy. It also shows how to prepare a bankable application rather than assuming that a government guarantee creates automatic approval.
What is the MCGS-MSME Scheme?
The mutual credit guarantee scheme for MSMEs is a Government of India credit-risk-sharing mechanism implemented through NCGTC’s MCGS-MSME framework. Its main purpose is to support term loans used for purchasing plant, machinery or equipment. The ordinary scheme provides 60% guarantee coverage for an eligible credit facility of up to ₹100 crore.
As an MSME credit guarantee rather than a direct loan product, it supports the lender’s risk position while leaving the credit decision with the MLI. A business seeking an MSME machinery loan or plant and machinery finance must therefore approach a participating lender with a viable project, rather than apply to NCGTC for cash.
The word “guarantee” needs careful reading. It is a guarantee given by NCGTC to the participating lender, not cash paid to the MSME and not a promise that 60% of the borrower’s loan will be forgiven. The lender sanctions and disburses the facility, monitors end use and repayment, and may seek a claim under the scheme only after a qualifying default and compliance with the guarantee conditions.
The January 2025 launch announcement originally focused on manufacturing and required machinery or equipment to account for at least 75% of project cost. The March 2026 modification expanded eligibility and changed key economic terms. Applicants should therefore avoid using an old checklist without confirming that it reflects the revised MCGS-MSME scheme.
Businesses comparing a general borrowing product with this purpose-linked programme can first review how a business loan is assessed. An MCGS loan is still a lender-sanctioned term loan; the guarantee is an added risk-sharing layer behind it.
Current MCGS Scheme Features at a Glance
|
Feature |
Current general position |
Important qualification |
|
Implementing institution |
NCGTC |
Guarantee is issued to a registered MLI, not directly to the borrower. |
|
Eligible borrower |
Micro, small or medium enterprise with valid Udyam Registration |
The borrower should not be an NPA with any lender at the relevant sanction or disbursement stage. |
|
Eligible sectors |
Manufacturing and service-sector MSMEs |
Project and end use must still satisfy scheme and lender rules. |
|
Facility |
Term loan |
A standalone working-capital limit is not the central purpose of this scheme. |
|
Main end use |
Purchase of plant, machinery or equipment |
The machinery/equipment component must be at least 60% of total project cost under the revised framework. |
|
Guaranteed loan amount |
Up to ₹100 crore |
Total project cost or total loan may be higher, but ordinary guarantee support does not exceed the scheme ceiling. |
|
Standard guarantee cover |
60% of eligible amount in default |
It is not 60% of every instalment and does not reduce the borrower’s full liability. |
|
Standard upfront contribution |
5% |
Refundable at 1
MCGS-MSME is a credit guarantee framework administered by NCGTC for eligible term loans used to purchase plant, machinery or equipment. Under the ordinary MCGS scheme, a registered MLI can receive 60% guarantee cover on the eligible amount in default for a facility up to ?100 crore. The borrower still owes the full amount under the loan agreement and must pass the lender’s credit appraisal. |
