The Central Government has strengthened the Credit Guarantee Scheme (CGS) for Micro and Small Enterprises (MSEs), raising the guarantee cover for eligible loans from ₹5 crore to ₹10 crore, reducing Annual Guarantee Fees by up to 50%, and extending additional benefits to women-led enterprises and businesses in credit-deficient districts.
The updates were shared by Union Minister of State for MSME, Shobha Karandlaje, in a written reply in the Lok Sabha on 23 July 2026. The scheme is implemented through the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to improve access to collateral-free credit for MSEs across India.
What is the Credit Guarantee Scheme (CGS) for MSMEs?
The Credit Guarantee Scheme (CGS) is a Government-backed programme that helps MSEs access institutional credit without providing collateral security or third-party guarantees. The scheme is implemented by the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) under the Ministry of MSME.
Under the scheme, Member Lending Institutions (MLIs) such as Scheduled Commercial Banks, Regional Rural Banks (RRBs), Small Finance Banks (SFBs), Non-Banking Financial Companies (NBFCs) and other eligible financial institutions can obtain a credit guarantee from CGTMSE for loans extended to eligible MSEs. The borrower remains responsible for repaying the loan. However, if the account turns into a default in accordance with the scheme's guidelines, CGTMSE settles the guaranteed portion of the outstanding amount with the lending institution, subject to the applicable guarantee coverage and terms of the scheme. This mechanism reduces the lender's credit risk and encourages collateral-free lending to MSEs.
Changes Announced Under the Credit Guarantee Scheme
The latest revision discussed in the Lok Sabha introduces changes across loan limits, guarantee fees, collateral requirements and targeted support for specific categories of borrowers. Here's a closer look at what has changed under the scheme.
1. Loan Guarantee Ceiling Doubled to ₹10 Crore
Businesses seeking larger credit facilities can now receive guarantee cover on loans of up to ₹10 crore, compared to the earlier limit of ₹5 crore. The revised ceiling has been in effect since 1 April 2025. By expanding the guarantee cover, the scheme now caters to MSEs with higher funding requirements for business expansion, technology upgrades and capacity creation.
2. Annual Guarantee Fee Reduced
The cost of availing the guarantee has also come down. The Government has revised the Annual Guarantee Fee (AGF) structure, reducing the standard rate by 50%. Depending on the loan category, the fee can now be as low as 0.37% per annum, lowering the cost of credit support under the scheme.
3. Higher Guarantee Cover for Women-Led Enterprises
Women-led Micro and Small Enterprises, along with other eligible special-category businesses covered under the scheme, will now receive a higher extent of guarantee than before. The enhanced coverage is intended to encourage greater institutional lending to these segments, which often face barriers in accessing formal finance.
4. No Collateral for Eligible Loans Up to ₹20 Lakh
Separately, the Reserve Bank of India's Master Direction on Lending to the MSME Sector, issued on 9 February 2026, requires all Scheduled Commercial Banks not to seek collateral security for loans of up to ₹20 lakh extended to eligible Micro and Small Enterprises. While this is an RBI lending requirement and not a CGTMSE amendment, it complements the scheme by making smaller business loans easier to access.
5. Additional Incentives for Credit-Deficient Districts
CGTMSE has introduced targeted incentives for businesses located in Identified Credit Deficient Districts (ICDDs), as identified by the RBI. Eligible borrowers in these districts receive a 10% concession on the Annual Guarantee Fee, while lending institutions also benefit from an additional 5% guarantee coverage. The objective is to improve formal credit penetration in regions where institutional lending has traditionally remained low.
6. Special Credit Guarantee Scheme for Tamil Nadu
The Government also continues to implement the Tamil Nadu Credit Guarantee Scheme (TNCGS) in partnership with the Government of Tamil Nadu. Under this initiative, Member Lending Institutions receive enhanced guarantee coverage for eligible loans extended to Micro and Small Enterprises engaged in the manufacturing sector within the state.
Why These Changes Matter for MSMEs
The latest revisions are expected to make formal credit more accessible and affordable for eligible Micro and Small Enterprises in several ways:
Higher-value loans can now be covered:
Lower guarantee costs:
Greater support for underserved segments:
Reduced dependence on collateral:
Broader participation by lending institutions:
Raising the guarantee ceiling to ₹10 crore allows larger credit facilities to qualify under the scheme, supporting businesses with bigger funding requirements.
The revised Annual Guarantee Fee structure reduces the cost of obtaining guarantee cover, making the scheme more economical for eligible borrowers and lending institutions.
Enhanced guarantee coverage for women-led enterprises and additional benefits for businesses in Identified Credit Deficient Districts are intended to improve credit access where lending has traditionally been lower.
Together with the RBI's direction on collateral-free loans up to ₹20 lakh, the changes make it easier for eligible MSEs to approach banks without offering assets as security.
Credit guarantees help reduce a lender's exposure to default risk, which can encourage Member Lending Institutions to extend collateral-free credit to eligible businesses.
Government Steps to Improve Access to the Scheme
Alongside the policy changes, the Ministry of MSME has outlined several measures to improve the reach and implementation of the Credit Guarantee Scheme across the country.
Regular review of bank performance:
Awareness programmes for MSMEs:
Coordination with lending institutions:
The performance of banks under the CGTMSE Scheme and the overall flow of credit to the MSME sector are reviewed periodically through State Level Bankers' Committee (SLBC) meetings.
The Ministry's field offices regularly organise outreach programmes to familiarise businesses with the scheme and its benefits.
These awareness initiatives are conducted in collaboration with CGTMSE, SIDBI, Scheduled Commercial Banks, MSME Associations and State/UT MSME Departments to improve awareness and facilitate wider adoption of the scheme.
Conclusion
With higher guarantee limits, lower guarantee fees and targeted support for priority segments, the latest revisions further expand the scope of the Credit Guarantee Scheme for Micro and Small Enterprises. The accompanying outreach and monitoring measures are expected to improve awareness and facilitate wider access to collateral-free institutional credit across the country.
Source - Ministry of MSMEs (PIB)
Frequently Asked Questions
What is the Credit Guarantee Scheme (CGS) for MSMEs?
The Credit Guarantee Scheme (CGS) enables eligible Micro and Small Enterprises (MSEs) to obtain collateral-free loans through Member Lending Institutions, with the credit guarantee provided by CGTMSE.
What is the new loan limit under the Credit Guarantee Scheme?
The guarantee ceiling has been increased from ₹5 crore to ₹10 crore, effective 1 April 2025.
Are collateral-free loans available under the CGTMSE scheme?
Yes. Eligible loans under the scheme do not require collateral security or third-party guarantees. Additionally, Scheduled Commercial Banks cannot seek collateral for eligible MSME loans up to ₹20 lakh, as per RBI guidelines.
Who is eligible for the Credit Guarantee Scheme?
Eligible Micro and Small Enterprises in the manufacturing and services sectors can avail the scheme through participating Member Lending Institutions.
What is the revised Annual Guarantee Fee (AGF)?
The standard AGF has been reduced by 50%, with rates starting from 0.37% per annum for eligible categories.
Are there any additional benefits for women-led MSMEs?
Yes. Women-led Micro and Small Enterprises receive enhanced guarantee coverage under the revised scheme.
How can an MSME apply for the Credit Guarantee Scheme?
MSMEs can apply for a loan through a participating Member Lending Institution. If eligible, the lender obtains the CGTMSE guarantee cover on the borrower's behalf.
