What is the Mutual Credit Guarantee Scheme for MSMEs?
MCGS-MSME is a government-backed credit guarantee scheme, administered by the National Credit Guarantee Trustee Company Limited, that provides Member Lending Institutions with 60 percent guarantee coverage on eligible loans of up to Rs 100 crore extended to MSMEs specifically for the purchase of plant, machinery and equipment.
The scheme was launched in January 2025 in line with the Union Budget 2025-26 announcement, and it addresses a gap that the older CGTMSE guarantee did not fully cover: large-ticket machinery investments by growing MSMEs and eligible medium enterprises that exceed CGTMSE's original ceiling and purpose.
Guarantee Coverage and Loan Structure
| Feature | Detail |
|---|---|
| Guarantee coverage | 60% of the eligible amount in default |
| Maximum loan covered | Up to Rs 100 crore |
| Purpose | Purchase of plant, machinery and equipment |
| Administering body | National Credit Guarantee Trustee Company Limited (NCGTC) |
| Launch date | January 2025 |
| Latest modification | March 2026 |
Under the standard route, borrowers make an upfront contribution, historically set at 5 percent, into the guarantee mechanism, which the 2026 update has now made partially refundable, as detailed below.
What Changed in the 2026 Update
The Government modified MCGS-MSME in March 2026, in line with Budget 2025-26 commitments, to expand coverage, reduce compliance burden and add targeted incentives for exporter MSMEs, making the previously non-refundable 5 percent upfront contribution refundable at 1 percent per year from the fourth year onwards subject to satisfactory loan performance.
- Refundable upfront contribution: the 5 percent upfront contribution is now returned in stages, at 1 percent per year starting from the fourth year, provided the loan account continues to perform satisfactorily.
- Service-sector eligibility widened: eligibility was expanded to explicitly include service-sector MSMEs, not just manufacturing units, broadening the scheme's practical relevance.
- Lower machinery-cost threshold: the minimum requirement that machinery and equipment must constitute a set share of total project cost was reduced from 75 percent to 60 percent, making mixed capex projects easier to qualify.
- Exporter MSME incentives: targeted incentives were introduced for exporter MSMEs undertaking qualifying machinery and equipment investment, supporting the government's broader manufacturing and export push.
Eligibility Criteria
- Valid Udyam Registration
- Loan purpose must be the purchase of plant, machinery or equipment, with at least 60% of eligible project cost attributable to this component post the 2026 update
- Both eligible micro and small enterprises and eligible medium enterprises undertaking a qualifying machinery project can apply, unlike the standard CGTMSE route which excludes medium enterprises
- Service-sector MSMEs are now explicitly eligible following the 2026 modification
- The loan must be sanctioned by a Member Lending Institution empanelled under the scheme
MCGS-MSME vs CGTMSE: Which Fits Your Need
| Parameter | CGTMSE | MCGS-MSME |
|---|---|---|
| Maximum guaranteed loan | Up to Rs 10 crore (Rs 20 crore for eligible exporter MSMEs) | Up to Rs 100 crore |
| Eligible enterprises | Micro and small only | Micro, small and eligible medium enterprises |
| Purpose | Wide range of credit facilities | Specifically machinery and equipment purchase |
| Guarantee coverage | 75% to 85% depending on category | 60% standard coverage |
| Upfront contribution | Annual Guarantee Fee from around 0.37% p.a. | 5% upfront, refundable in stages from year 4 (post-2026 update) |
In practice, CGTMSE suits eligible micro and small enterprises needing a broad range of collateral-free facilities up to its ceiling, while MCGS-MSME is the stronger starting point for larger, machinery-heavy projects, particularly for medium enterprises that CGTMSE's standard route does not cover at all.
How to Apply for MCGS-MSME
- Confirm your enterprise holds valid Udyam Registration and your machinery purchase meets the revised 60% project-cost threshold.
- Prepare a project report clearly detailing the machinery or equipment being financed and its share of total project cost.
- Approach a bank or NBFC empanelled as a Member Lending Institution under MCGS-MSME.
- The lender appraises the loan application on its own credit criteria, independent of the guarantee scheme.
- Once sanctioned, the lender separately applies to NCGTC for guarantee cover on the eligible portion of the loan.
- Make the applicable upfront contribution, which is now partly refundable from the fourth year of satisfactory repayment onward.
Key Takeaways
- MCGS-MSME provides 60% guarantee coverage on loans up to Rs 100 crore for MSME machinery and equipment purchases, administered by NCGTC.
- The scheme was launched in January 2025 and modified in March 2026 to expand eligibility and reduce compliance burden.
- Key 2026 changes: the 5% upfront contribution is now refundable from year four, service-sector MSMEs are explicitly eligible, and the machinery-cost threshold was reduced from 75% to 60% of project cost.
- MCGS-MSME, unlike standard CGTMSE, is also open to eligible medium enterprises undertaking qualifying machinery investments.
- Applications go through a Member Lending Institution; there is no direct application route to NCGTC for the borrower.
FAQs
What is MCGS-MSME?
MCGS-MSME, or the Mutual Credit Guarantee Scheme for MSMEs, is a government-backed guarantee scheme administered by the National Credit Guarantee Trustee Company that provides 60 percent credit guarantee coverage to Member Lending Institutions on eligible loans up to Rs 100 crore, specifically for MSMEs purchasing equipment and machinery.
When was MCGS-MSME launched and when was it updated?
MCGS-MSME was launched in January 2025 in line with the Union Budget 2025-26 announcement, and the scheme was subsequently modified in March 2026 to expand eligibility, reduce compliance burden and add targeted incentives for exporter MSMEs.
What changed in the 2026 update to MCGS-MSME?
The 2026 modification made the 5 percent upfront contribution refundable at 1 percent per year from the fourth year onwards subject to satisfactory loan performance, expanded eligibility to include service-sector MSMEs, and reduced the minimum machinery and equipment cost requirement from 75 percent to 60 percent of total project cost.
How is MCGS-MSME different from CGTMSE?
CGTMSE covers a broader range of credit facilities up to Rs 10 crore for eligible micro and small enterprises across purposes including working capital, while MCGS-MSME is specifically focused on machinery and equipment purchase, covers loans up to a much higher Rs 100 crore ceiling, and is also open to eligible medium enterprises undertaking qualifying machinery projects.
Do I apply to MCGS-MSME directly?
No, similar to other NCGTC and CGTMSE guarantee schemes, an MSME cannot apply to MCGS-MSME directly; the enterprise applies for a loan through a Member Lending Institution, and the lender separately seeks the guarantee cover from NCGTC once the loan is sanctioned.
Is MCGS-MSME available to exporter MSMEs on more favourable terms?
Yes, the 2026 modification specifically introduced targeted incentives for exporter MSMEs to encourage machinery and equipment investment aimed at boosting manufacturing and export capacity, in addition to the general benefits available to all eligible MSME borrowers under the scheme.
Talk to Growthora
If your business is planning a machinery or equipment upgrade and wants help evaluating whether MCGS-MSME or CGTMSE is the better fit, or in preparing a bank-ready project report, Growthora Advisory can guide the process. Book a free consultation with our funding team today.
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