Emergency Credit Line Guarantee Scheme for MSMEs

With around 63.4 million units in total, MSMEs contribute around 6.11% and 24.63% of the manufacturing and services GDP respectively. They have been able to provide employment to around 120 million and contribute around 45% of the overall exports from India.

I. The scheme in a nutshell:

Under the Emergency Credit Line Guarantee Scheme for MSMEs, the Government of India offers a 100% guarantee on loans given by banks and NBFCs to business enterprises up to a cumulative amount of Rs.3 Lakh Crore without any collateral. The guarantee would cover both principal and interest. The borrowers would be eligible to the extent of 20% of their outstanding credit as on February 29, 2020, subject to a ceiling of Rs.25 crore. Those units with a turnover of up to Rs.100 Crore can avail of the scheme.

How do the Emergency Credit Line Guarantee Scheme for MSMEs works?

II. Progress under the scheme:

Under the scheme, the Government provides a 100% guarantee to banks on loans given to MSMEs. Public Sector banks and private banks have disbursed loans worth nearly Rs 32,985 crore to small businesses under the scheme in a month out of the total sanctions worth Rs 75,426 crore during the same period.

III. Advantages and disadvantages:

IV. Profile of firms availing the Credit Line Guarantee Scheme:

• Units with a turnover of up to Rs.100 crore, and where 20% of the outstanding loan is equal to or less than Rs.25 crore as on 29-02-2020.
• Small and medium enterprises in the manufacturing and service sectors are availing of the benefits.
• Units registered as trusts, limited liability partnerships, partnerships, proprietorships, and registered companies.
• Retailers and traders too have availed loans and not just MSMEs as detailed GOI guidelines use the term business enterprises, instead of the original term MSMEs.
• The borrowers registered with the GST Network (GSTN).

V. Why this scheme is active in some States /sectors more than others?

Gujarat, Maharashtra, Tamil Nadu, UP, and Karnataka topped the list due to the following reasons:

(1) GDP at constant prices for FY 2020 was much higher than the all-India average of 7.1% as follows:

(2) These States also boast of a higher per capita income of close to US$ 3000 per annum, higher than all-India average of US$ 2199 making it more profitable for MSMEs to come up.

(3) Maharashtra (11 Lakh), Tamil Nadu (7.91 Lakh), and UP (7.06 Lakh) are states with maximum MSME registrations under Udyog Aadhar. The total number of MSME units is also higher in these States.

(4) More bank branches are there in these States making credit availability easier.

(5) Maharashtra and Gujarat have a lot of entrepreneurs and formalized credit culture is firmly rooted. So, is the case in Karnataka. Historically, bank credit to GDP ratio is also higher for these States.

(6) As far as sectors are concerned, demand from small firms in the service sector is lower since they stare at a potential closure. However, there is more demand from manufacturing firms.

(7) Though these loans are pre-approved, bankers are also told to examine eligibility before sanctioning and take suitable measures regarding those with a bad repayment history. This can lead to risk aversion and the exclusion of risky sectors.

VI. How MBA entrepreneurs can avail the scheme:

♠ If one-fifth of their outstanding loan facility with lenders as on 29-02-2020, is less than Rs.25 crore, they can avail the scheme.
♠ Good for mid-sized entrepreneurs as units with turnover up to Rs.100 crore can avail.
♠ Will bring down transaction costs as there are no pre-payment charges, processing fees, guarantee fees, etc. making this scheme a much better alternative to normal loans.
♠ They can avail of this to expand their existing facilities and augment capacity without furnishing additional collateral.
♠ They can use this scheme to diversify the business into new sectors like food processing, dyes & chemicals, paints, electrical & electronic manufacturing,


1) How does the scheme bring down transaction costs for firms?

2) What is the rate of interest offered on this scheme?

3) Why does Gujarat and Maharashtra gain more from these schemes?

4) An MSME unit has a loan re-payment to his bank which is overdue for the past 62 days as on 29-02-2020. Discuss its eligibility under the scheme

5) Discus the demerits of the scheme.

6) What are the advantages of the scheme to a customer?


  1. bloombergquint.com
  2. RBI website
  3. economictimes.com
Dr. Madhavankutty G
Dr. Madhavankutty G

Prior to joining ET Prime, was Senior Economist with Bank of India. Prior to that was an Economist in Andhra Bank (now Union Bank of India) and also served in ICFAI University as a research fellow.
Also a Member of the IBA Monetary Policy Group, and was a visiting faculty in Economics area at NMIMS University, Navi Mumbai and K.J.Somaiya Institute, Mumbai.
Holds a Masters in Business Economics and is a Certified Associate of Indian Institute of bankers (CAIIB)


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