The government is set to launch a collateral-free term loan scheme for micro, small and medium enterprises (MSMEs) to strengthen their manufacturing capabilities, Finance Minister Nirmala Sitharaman said on Saturday, adding that the scheme will soon submitted to the cabinet.

Introduction of the new credit guarantee scheme will have to be submitted to the cabinet “earlier”, which will facilitate “term loans” to MSMEs, she said while addressing the industry at the national program outreach to MSME clusters in Bangalore.

After the success of the working capital loan facility – the Emergency Credit Line Guarantee Scheme (ECLGS) – which helped save millions of MSMEs from falling into the red by providing them with liquidity during the Covid period, the government is launching a term loan facility to enable them to finance their operations. purchase modern facilities and machinery. As of December 2023, ECLGS has issued guarantees to over 11.9 million borrowers involving ₹3.68 lakh.

Sitharaman said on Saturday that although MSMEs were availing easy working capital loans, they were facing difficulties in getting term loans. Although the proposed scheme will cover unsecured security for term loans up to ₹100 crore, a unit can borrow even more from banks, she said while addressing the industry.

“You don’t even need a third-party guarantee, no guarantee, no third-party guarantee,” she added.

The proposed scheme is among the five key budget proposals aimed at boosting the MSME sector. “This budget pays special attention to MSMEs and the manufacturing sector, especially the labor-intensive manufacturing sector. We have formulated a package covering financing, regulatory changes and technological support for MSMEs to help them grow and compete globally, as mentioned in the interim budget,” the FM said while announcing specific measures during his budget speech on July 23.

The budget speech said that a credit guarantee scheme for MSMEs in the manufacturing sector would be introduced. “The program will work on pooling the credit risks of these MSMEs. A separately self-funded guarantee fund will provide each applicant with guarantee cover up to ₹100 crore, while the loan amount can be larger. The borrower will be required to provide an initial guarantee fee and an annual guarantee fee on the declining balance of the loan,” she said that day.

The government recently implemented its second MSME-related budget proposal to increase the Mudra loan limit for entrepreneurs who have availed and successfully repaid previous loans. Last month, he doubled the maximum limit of unsecured institutional credit extended to small businesses for ₹20 lakh for a new category of scrupulous entrepreneurs – Tarun Plus – who have availed this facility in the past and repaid the borrowed amount. The move also increased the categories of Mudra loan beneficiaries from three to four under the Pradhan Mantri Mudra Yojana (PMMY) launched by Prime Minister Narendra Modi on April 8, 2015.

Other budget proposals are in various stages of implementation, officials said. The proposals include a new credit scoring model for MSMEs, branches of the Small Industries Development Bank of India (SIDBI) in MSME clusters and increased scope for mandatory integration into the MSME system platform. electronic discounting of commercial receivables (TReDS) to unlock their working capital.