Government approves Rs 3 lakh crore additional funding for MSMEs and MUDRA borrowers

New Delhi: The Union Cabinet on Wednesday gave approval for additional funding of up to Rs 3 lakh crore to MSMEs and interested MUDRA borrowers by way of "Emergency Credit Line Guarantee Scheme."

Under the Scheme, 100 percent guarantee coverage will be provided by National Credit Guarantee Trustee Company Limited (NCGTC) for additional funding of up to Rs 3 lakh crore in the form of a Guaranteed Emergency Credit Line (GECL) facility.

A corpus of Rs 41,600 crore shall be provided by the government spread over the current and the next three financial years. The Cabinet also approved that the Scheme would be applicable to all loans sanctioned under GECL Facility during the period from the date of announcement of the Scheme to October 31, 2020, or till an amount of Rs 3,00,000 crore is sanctioned under the GECL, whichever is earlier.

The main objective of the Scheme is to provide an incentive to Member Lending Institutions (MLIs), i.e., Banks, Financial Institutions (FIs) and Non-Banking Financial Companies (NBFCs) to increase access to, and enable availability of additional funding facility to MSME borrowers, in view of the economic distress caused by the COVID-19 crisis, by providing them 100 per cent guarantee for any losses suffered by them due to non-repayment of the GECL funding by borrowers, an official release said.

Finance Minister Nirmala Sitharaman announcing the first tranche of the Rs 20 lakh crore Atmanirbhar Bharat Package anounced six measures are exclusively meant for the MSME sector including the new definition of the sector.

Accordingly, the investment limit for defining MSMEs has been revised upwards.

Prime Minister Narendra Modi had on May 5 announced a cumulative package of Rs 20 lakh crore (nearly 10 per cent of GDP) to provide relief to various segments of the economy. This included Rs 1.7 lakh crore package comprising of free foodgrains and cash to poor for three months announced in March, and Rs 5.6 lakh crore stimulus provided through various monetary policy measures by the Reserve Bank of India (RBI).

India has been under nationwide lockdown since March 25 to curb the spread of the COVID-19 pandemic.