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Government expands MSME Loan Guarantee Scheme

Loan Guarantee Scheme

The Government of India has expanded its MSME (Micro, Small and Medium Enterprises) loan guarantee scheme to include lawyers, doctors, and chartered accountants for business purposes and to large firms with a turnover of Rs. 250 crore.

Overview of MSME loan guarantee scheme

With a view to helping businesses to tide over the Covid-19 pandemic, the finance ministry announced collateral-free loans up to 3 lakh crore rupees on 13th May 2020. 

The 100% collateral-free loan is called the Emergency Credit Line Guarantee Scheme. It is being provided by the National Credit Guarantee Trustee Company to banks, NBFC, and Financial Institutions.

The 3 lakh crore loan guarantee scheme has been announced as part of the Atmanirbhar package by the government. As per this scheme, every eligible MSME or business enterprise is eligible for a pre-approved sanction limit of up to 20% of the loan outstanding on 29th Feb 2020. It is like an additional working capital term loan facility in case of banks and financial institutions and additional term loan facilities in case of NBFCs. 

Revised changes under the scheme

Earlier the eligibility was kept for all business enterprises or MSMEs that have a total outstanding loan across different banks, NBFCs, and financial institutions up to Rs. 25 crores on 29th Feb 2020 and the annual turnover of the firm was kept up to Rs. 100 crore for Financial Year- 2019-2020.

Now under the revised eligibility and new terms borrower accounts with loans outstanding of up to 50 crore rupees on 29th Feb 2020 shall be eligible for a loan guarantee on their additional borrowings of up to 20% of their outstanding amount. Further, the finance ministry has also raised the annual turnover ceiling of companies that can avail the loans under this scheme to 250 crore rupees. It implies that the minimum loan amount a unit can avail with guarantee will be now 10 crore rupees as against 5 crore rupees earlier.

Eligibility under the scheme

The government of India has expanded the scope of the scheme recently to include individual loans given for business purposes. It has made professionals like lawyers, doctors and chartered accountants to be eligible under the scheme for Micro, Small and Medium Enterprises. These professionals can utilize the money to fulfill their professional purposes.

Further firms with an annual turnover of 250 crore rupees are also eligible under the scheme. It provides an opportunity for a much wider pool of businesses to benefit from it.

Why have the relaxations been made by the finance ministry?

According to the finance ministry, the relaxations have been made keeping in mind the success of this scheme and its potential to help businesses. As per a report loans of up to an amount of Rs. 1, 36, 155 crores has been sanctioned to 40 lakh units as on 29th July and out of which Rs. 87,227 crores has already been disbursed.

Further, it has been expected that close to Rs. 1 lakh crore could be sanctioned to the additional beneficiaries. The Secretary for the Department of financial services said that the relaxations and the changes to the scheme were made after consultation with the stakeholders and taking to the account the remaining headroom under the window.


The inclusion of professionals to the loan guarantee scheme by the government will enable these professionals to benefit from it and widens the scope of this scheme. It will also allow more companies to benefit from the scheme as various ceilings under the scheme have been raised.

Read our article:NBFC: Things to know before Incorporating this Financial Institution

Ashish M. Shaji

Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.

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