Union Budget 2024: Govt Introduces Credit Guarantee Scheme, Increases Mudra Loan Limit For MSMEs

FM Sitharaman said that the government will introduce a credit guarantee scheme to simplify access to term loans for MSMEs seeking to acquire machinery and equipment without requiring collateral

Union Budget 2024: FM said during her budget speech that public sector banks will enhance their internal capacity to evaluate MSMEs for credit, moving away from external assessments

Source : PTI

Finance Minister Nirmala Sitharaman presented the Union Budget for 2024 in the parliament on Tuesday. In her speech, she announced that this budget puts a special focus on micro, small, and medium enterprises (MSMEs). “We 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,” FM said.

Here are some of the initiatives announced by the Finance Minister for the MSMEs in the Union Budget 2024.

Credit Guarantee Scheme In Manufacturing Sector

Sitharaman said that the government will introduce a credit guarantee scheme to simplify access to term loans for MSMEs looking to acquire machinery and equipment without requiring collateral or third-party guarantees. This scheme will collectively manage credit risks for these MSMEs. A self-financing guarantee fund will offer guarantee coverage up to Rs 100 crore per applicant, even for bigger loan amounts. Borrowers will be required to pay an upfront guarantee fee and an annual fee based on the decreasing loan balance.

New Assessment Model For MSMEs Credit

FM said during her budget speech that public sector banks will enhance their internal capacity to evaluate MSMEs for credit, moving away from external assessments. They will spearhead the development or adoption of a novel credit assessment model utilising the digital footprints of MSMEs within the economy. 

This approach represents a step beyond traditional credit evaluations that rely solely on asset or turnover metrics. It will also cover MSMEs that operate without formal accounting systems.

Credit Support To MSMEs During Difficult Times

The government introduced a new mechanism to ensure ongoing bank credit to MSMEs during periods of financial stress. When MSMEs find themselves in the 'special mention account' (SMA) category due to factors beyond their control, they require credit to sustain their operations and prevent entering the non-performing asset (NPA) stage. To facilitate this, credit availability will be backed by a guarantee from a government-sponsored fund.

Mudra Loans

The Government has increased the Mudra loan limit to Rs 20 lakh from the current Rs 10 lakh for entrepreneurs who have successfully repaid previous loans under the 'Tarun' category.

Reduction In Turnover Threshold For Enrollment On TReDS Platform

To help MSMEs access their working capital by converting trade receivables into cash, FM suggested lowering the turnover threshold for mandatory enrollment on the TReDS platform from Rs 500 crore to Rs 250 crore for buyers. This adjustment will bring 22 additional CPSEs and 7,000 more companies onto the platform. It will also extend coverage to medium enterprises acting as suppliers.

New SIDBI Branches To Serve Major MSME Clusters

Small Industries Development Bank of India (SIDBI) will open new branches to expand its reach to serve all major MSME clusters within 3 years and provide direct credit to them. With the opening of 24 such branches this year, the service coverage will expand to 168 out of 242 major clusters.

MSME Units For Food Irradiation, Quality & Safety Testing

The government will offer financial assistance to establish 50 multi-product food irradiation units within the MSME sector and facilitate the establishment of 100 food quality and safety testing laboratories accredited by NABL.

E-Commerce Export Hubs

In a public-private-partnership (PPP) model, E-Commerce Export Hubs will be established to enable MSMEs and traditional artisans to sell their products in international markets. These hubs will operate under a regulatory and logistic framework, providing comprehensive trade and export-related services in a single location.