MSME Budget 2024: Credit guarantee scheme, support during financial stress and other benefits announced for MSMEs

On July 23rd, Finance Minister Nirmala Sitharaman presented her seventh Union Budget for the fiscal year 2024-25, making substantial adjustments including higher standard deductions and revised tax rates for salaried individuals under the new tax regime.

In her speech, she placed a significant emphasis on the growth and support of Micro, Small, and Medium Enterprises (MSMEs), announcing several pivotal measures aimed at bolstering this crucial sector of the economy. Here’s everything she announced on MSMEs.

Introduction of credit guarantee scheme

A noteworthy initiative is the new credit guarantee scheme for MSMEs in the manufacturing sector. This scheme will facilitate term loans for the purchase of machinery and equipment, eliminating the need for collateral or third-party guarantees. By pooling credit risks, a self-financing guarantee fund will be established, providing guarantee coverage up to ₹100 crore per applicant, although the loan amounts may exceed this limit. Borrowers will be required to pay an upfront guarantee fee and an annual fee based on the reducing loan balance.

Enhanced credit assessment models

The FM stated that Public sector banks will now develop in-house capabilities for assessing MSME creditworthiness, moving away from external evaluations. She added, “These banks will spearhead the development of new credit assessment models that utilize digital footprint scoring, representing a significant advancement over traditional asset or turnover-based evaluations. This new approach aims to include MSMEs that lack formal accounting systems.”

Support during financial stress

A mechanism to support MSMEs during periods of financial stress was also announced. As per the FM, this initiative ensures continued access to bank credit for MSMEs in the ‘special mention account’ (SMA) stage, helping them avoid slipping into non-performing asset (NPA) status. The credit will be backed by a guarantee from a government-promoted fund, providing much-needed support to sustain their operations.

Increased mudra loan limits

The budget also proposed enhancing the limit for Mudra loans under the ‘Tarun’ category from ₹10 lakh to ₹20 lakh. This increase is targeted at entrepreneurs who have successfully repaid previous loans, enabling them to secure larger funds for business expansion.

Expansion of SIDBI branches

To extend its reach, the Small Industries Development Bank of India (SIDBI) will open new branches in major MSME clusters. With 24 new branches set to open this year, the total coverage will expand to 168 out of 242 major clusters within three years, providing direct credit to more MSMEs.

Support for Food Processing Units

The budget also includes financial support for establishing 50 multi-product food irradiation units and 100 food quality and safety testing labs with NABL accreditation in the MSME sector. These initiatives aim to enhance food safety and quality, providing a boost to MSME units involved in food processing.