MSME funding scheme

MSME funding scheme

MSME Definition

MSME stands for Micro, Small and Medium Enterprises

For Enterprises occupied in the manufacture or production, processing or preservation of goods, the definition is:

         •    Micro-Enterprise: An enterprise where investment in plant as well as machinery doesn’t surpass Rs. 25 lakh.

         •    Small Enterprise: An enterprise where the investment in plant as well as machinery is above Rs. 25 lakh but doesn’t surpass Rs. 5 crore.

         •    Medium Enterprise:  An enterprise where the investment in plant as well as machinery is above Rs.5 crore but doesn’t surpass Rs.10 crore.

For the above enterprises, investment in plant and machinery is the original cost which excludes land and building and additional items as specified by the Ministry of Small Scale Industries.

For Enterprises occupied in giving or rendering of services, the definition is:

        •    Micro-Enterprise: An enterprise where the investment in equipment doesn’t surpass Rs. 10 lakh.

        •    Small Enterprise: An enterprise where the investment in equipment is above Rs.10 lakh but doesn’t surpass Rs. 2 crore.

        •    Medium Enterprise: An enterprise where the investment in equipment is above Rs. 2 crore but doesn’t surpass Rs. 5 crore.

Msme Funding Scheme

Micro, small and medium enterprises (MSMEs) form a substantial part of the organized business sector in India, engaging a large portion of the population. The MSME funding scheme launched by the Indian government are; 

Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGS/CGTMSE)

In Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGTMSE) which is likewise known as a Credit Guarantee Scheme was launched by the Government of India on 30th August 2000 and it presents the credit as well as income input from several sources towards supporting the small scale industries which are under difficulty. The Credit Guarantee Fund Scheme makes collateral-free credit available to the MSME sector. Both new and existing enterprises are eligible for this loan coverage. Under the scheme, the MSME Ministry and the Small Industries Development Bank of India (SIDBI) established a trust known as the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement the CGS for MSME’s.

Under the CGS scheme, MSMEs could avail of term loans and working capital loans up to Rs. 1 crore each application, which is available without any collateral or third-party guarantee.

MUDRA Loan Scheme

The Pradhan Mantri Mudra Yojana (PMMY) stands for Micro-Units Development & Refinance Agency Ltd, has been launched in April 2015 by Prime Minister Narendra Modi. The loans are given to non-corporate, non-farm small as well as micro-enterprises.

The loans are given by banks and non-banking financial firms as working capital and term loans for business divisions in manufacturing, trading and services as well as for agriculture activities.

This scheme offers loans under three tiers -- Shishu (loans up to Rs. 50,000), Kishor (loans between Rs. 50,000 and Rs. 5 lakh), as well as Tarun (loans amid Rs. 5 lakh and Rs. 10 lakh). Each category also attracts variable rates of interest for the refinancing, that is 10%-12% for Shishu, 14%-17% for Kishor, and 16%+ (relying on the amount of credit extended by the bank) for Tarun.

In 2018-19, approximately 60 million loans worth Rs 3 trillion were allowed under Mudra, as per the PMMY website, which was also the target amount. 

Indeed, even as the loans are covered under Credit Guarantee for Micro Units, the bad debt is higher. If the collateral-free loan sum is doubled, it could push up the absolute sum of bad debts also. Yet bankers shall unlikely to double the ticket size unless the insurance cover proportionately rises.

The loans are offered to commercial banks, regional rural banks, and scheduled co-operative banks; aside from this, MUDRA also provides business loans up to Rs.1 lakh through MFIs under a Micro Credit Scheme (MCS).

Stand Up India Scheme

Headed by SIDBI, this scheme was launched in April 2016. At least one ST or SC borrower as well as one woman borrower per bank branch could avail this loan to set up a green-field enterprise. Bank loans are available between Rs. 10 lakhs and Rs. 1 crore, under the scheme. Tenure of the loan is up to 7 years with 18 months as maximum moratorium period.

According to the MSME Ministry, 20.4% of all Indian MSMEs are run by women, and 66.2% of Indian MSME businesses are run by individuals from “socially backward groups”. Given these high numbers, and the marginalization often faced by members of these communities, the Indian government has taken steps to make sure these entrepreneurs receive easy and fair access to finance for their business. One such initiative is the Stand Up India loan scheme.

Launched in April 2016 as a sibling scheme to Prime Minister Narendra Modi’s flagship Startup India scheme, Standup India offers bank loans of between Rs. 10 lakh and Rs. 1 crore for scheduled castes and scheduled tribes as well as women setting up new businesses outside the farm sector. The loan is available towards these entrepreneurs to set up a greenfield (first-time) enterprise in the manufacturing, services, and/or trading sectors. Any adult Indian woman or SC/ST member is eligible for applying for this loan.

The Scheme offers a composite loan (comprehensive of term loans and working capital) for up to 75% of the cost of setting up the business. Collateral-free, the Stand-Up India loan might be secured by the issuing bank by security or guarantee under the Credit Guarantee Fund Scheme for Stand-Up India Loans (CGFSIL), with a maximum interest rate of Base/MCLR + 3% +Tenure premium. The loan must be repayable in 7 years, with a maximum moratorium period of 18 months.

Eligible entrepreneurs could apply for the Stand-Up India loan online or directly through a partner-lender. If applying online, the applicant has the option towards choosing the degree of “handholding support” needed, and the portal would take the applicant through the application step by step.

Stand-Up India Scheme gives loan for Enterprises in trading, manufacturing, or services. For non-individual entities, 51% of the shareholding as well as controlling stake are required to be held by an SC/ST or female entrepreneur. The borrower must not be in default with any bank or financial institution. This scheme facilitates loans from Rs. 10 Lakhs to 1Crore.

Other Government MSME funding/Loan Schemes are; 

The above mentioned three schemes are the biggest government initiatives to finance the Indian MSME sector. However, the other schemes launched by the government are:

MSME Business Loans for Start-ups in 59 Minutes

This scheme was launched in September 2018, when the Prime Minister of India; Shri Narendra Modi unveiled a 12-point action plan for the MSME sector. It is headed by CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises). This business loan is intended for existing businesses that have GST number, are IT complaint, and with at least 6 months of bank statement facility. The eligibility of a corporation is decided upon its revenue/income, existing credit facilities, repayment capacity, and other factors as set by the banks. One could avail a loan amount of Rs. 1 lakh to Rs. 1 crore at a rate of interest 8% onwards.

Bank Credit Facilitation Scheme

It is governed by the NSIC (National Small Industries Corporation) and is available for all registered and eligible MSMEs in India. The NSIC entered into an MoU with the private sector as well as nationalized banks to meet the credit requirements of the MSME units. Through syndication with these financial institutions, NSIC arrange fund or non-fund-based limits without any cost to the MSMEs. Repayment tenure depends on the income generated by the corporation. It is usually up to 5 to 7 years, but in some cases, it can go up to 11 years.

Credit Link Capital Subsidy Scheme for Technology Upgradation

Office of the Development Commissioner (MSME) has launched this Government scheme for helping manufacturers, SMEs, and agri-startups to upgrade their existing machines and technologies.
For any SMEs registered with State Directorate of Industries are required to upgrade their machines, plants with state of the art technology, then they could make an application for this grant, and obtain finances to compensate their expenditures.

Applicable Industries are; Khadi, Village or Coir industry, Manufacturing, Small Scale Industry, SMEs

This scheme allows small businesses to upgrade their procedure by financing technological upgradation. The technological upgradation could be related to numerous processes within the organization, such as manufacturing, marketing, supply chain etc. By means of the CLCSS scheme, the government intends towards reducing the expense of production of products and services for SME’s, consequently allowing them to remain price competitive in local as well as international markets. The scheme is governed by the Ministry of Small-Scale Industries. The CLCSS offers an up-front capital subsidy of 15% for eligible business. However, there is a cap to the maximum amount that could be availed as subsidy under the scheme, which is set at Rs.15 lakhs. Sole proprietorships, partnership firms, co-operative, private and public limited companies come under the ambit of this business loan scheme.

Credit Linked Capital Subsidy for Technology Upgrades (CLCPTU)

 This loan for business is for facilitating technology upgrades by offering upfront capital subsidies towards SSI units including coir, khadi, and village industrial units on institutional credit. The financial support would help to modernize production techniques and equipment. This scheme is governed by the Office of the Development Commissioner, Ministry of MSMEs.

Features of (CLCPTU)

    Admissible capital subsidy is calculated on the basis of the purchase price of the machinery and plant instead of the term loan provided to the unit.

    Rate of subsidy is up to 15%.

    The ceiling on this business loan is up to Rs. 1 crore.

4E (End to End Energy Efficiency)

4E was launched in September 2016. It is administered by the Small Industries Development Bank of India (SIDBI). This MSME scheme was launched jointly by ISTSL (Indian SME Technology Services Ltd) in association with the World Bank. The main goal of this funding scheme is to implement energy efficiency measures in the Indian industries. It intends to help start-ups with purchasing of second-hand equipment/machinery.

Features of End to End Energy Efficiency Scheme are;

    This business loan meets part costs of capital expenditure. It could consist of cost of equipment/machinery purchase, installation, commissioning, civil works, etc.

    It could provide for any other related expenditure needed by the unit. However, the cost should not be greater than 50% of the capital expenditure.

    The loan amount is up to one-fifth of the total turnover of the company. Minimum loan amount is Rs. 10 lakhs and maximum loan amount is Rs. 150 lakh.

    The repayment tenure is up to 36 months for a loan amount up to Rs. 100 lakhs. The tenure is up to 60 months for a loan amount more than Rs. 100 lakhs.

    The MSME start-up should pay Rs. 30,000 while the balance fee and applicable taxes will be paid by the SIDBI to the auditors.

Coir Udyami Yojana

This loan scheme is intended for the agriculture sector. It is governed by the Coir Board and intended to give financial support towards coir units. Projects could be financed through bank through composite loans, consisting of working and Capex capital. Financial institutions finance capital expenditure through a term loan towards meeting working capital requirements.

Features of Coir Udyami Yojana are; 

    The subsidy is calculated by excluding the working capital component.

    After deducting 40% margin money and the owner’s contribution of 5% from beneficiaries, the loan amount would be 55% of the total project cost.

    Banks could provide a loan of up to Rs. 10 lakhs along with one cycle of working capital, not more than 25% of the project cost.

    The interest rate is at par with the base rate.

    The tenure is up to 7 years.

Udyog Aadhaar memorandum

Aadhaar card is a 12 digit number which is given to every citizen in India by the government. In this, the Aadhaar card is a compulsory requirement. The advantage of registering in this scheme is simplicity in availing credit, loans, and subsidies from the government. 

Zero Defect Zero Effect

In this scheme, products that are manufactured for export have to abide by a certain standard so that they are not disallowed or sent back to India. To achieve this government has started this scheme. In this, if the products are exported these are eligible for some discounts and concessions.

Quality Management Standards and Quality Technology Tools

Registering in this scheme would help the MSME to understand and carry out the quality standards that are essential to be maintained along with the new technology. In this scheme, activities are carried out to sensitize the businesses regarding the new technology available through various seminars, campaigns, and activities and so forth.

Grievance Monitoring System

Registering under this scheme is helpful for getting the complaints of the business owners addressed. In this, the business owners could check the status of their complaints; open them if they are not contented with the outcome.


This scheme assists innovators with the implementation of their new design, ideas or goods. Under this from 75% to 80% of the project cost could be financed by the government. This scheme endorses new ideas, designs, products etc.

Credit Linked Capital Subsidy Scheme

In this scheme, new technology is given to the business owners for replacing their old and outdated technology. The capital subsidy is provided to the business to upgrade and have better means to carry out their business. These small, micro and medium enterprises could directly approach the banks for these subsidies.

Women Entrepreneurship

This scheme is started for women who wanted to start their own business. The government gives capital, counselling, and training as well as delivery techniques to these women, as a result of which they manage their business and expand it.

TREAD (Trade-Related Entrepreneurship Assistance and Development) scheme

This scheme intends to empower women by providing credit to projects, guiding specific training and counselling, and producing information on related requirements. The scheme gives for a government grant of up to 30% of the total project cost as appraised through lending institutions. These institutions would finance the other 70%.

Mahila Udyam Nidhi Scheme

Offered by Small Industries Development Bank of India (SIDBI), this scheme offers financial help of up to Rs 10 lakh to start a new small-scale venture. It also helps with upgrading and modernization of existing projects. The loans are to be paid within 10 years, and this consists of a 5 year moratorium period. Furthermore, interest rates on these loans could vary according to market rates.

Annapurna Scheme

This scheme is applicable to women businesspersons who have commenced a food catering unit. They could avail a loan of up to Rs 50,000 to buy kitchen equipment like utensils and water filters. A guarantor is prerequisite to secure the loan. After securing the loan, it could be paid back in 36 instalments. Furthermore, interest rates under this scheme according to prevailing rates and assets would be taken as collateral by the concerned bank.

Stree Shakti Package for Women Entrepreneurs

This scheme is offered to women who contain the majority ownership (over 50%) in a small business. The women also required to be registered in the Entrepreneurship Development Programmes (EDP) which is organized by their respective state agency. In this scheme, an interest concession of 0.05% could be availed on loans above Rs 2 lakh.

Bhartiya Mahila Business Bank Loan

This scheme comprises a loan of up to Rs 20 crore for women business proprietors of manufacturing firms. Under the Credit Guarantee Fund Trust for Micro and Small Enterprises, there is no requisite for collateral for loans up to Rs 1 crore. The loans under this bank loan scheme are to be paid back in 7 years. The scheme was executed by Bhartiya Mahila Bank which was amalgamated with State Bank of India in 2017.

Dena Shakti Scheme

This scheme offers loans up to Rs 20 lakh for women businesspersons in agriculture, manufacturing, micro-credit, retail stores, or comparable small enterprises. There is a concession of 0.25% on the rate of interest. In this scheme, loans up to Rs 50,000 are provided under the microcredit category.

Udyogini Scheme

Women businesspersons between the ages of 18 and 45, who are engaged in agriculture, retail and similar small businesses, could avail loans up to Rs 1 lakh under this scheme. Furthermore, the women’s family’s annual income must be less than Rs 45,000 to avail the loan. Though, no income limits are there for widowed, destitute or disabled women. For any widowed, destitute or disabled women from SC/ST classes, a subsidy of 30% of the loan, up to Rs 10,000, is given.

Cent Kalyani Scheme

This is offered by the Central Bank of India, this scheme is for women business proprietors in multiple areas like agricultural work or retail trading. In this scheme, loans up to Rs 1 crore are approved and no collateral or guarantors are necessary. Interest rates on loans rely on varying market rates.

The five technology up-gradation MSME funding schemes offered by the government are;

Technology and Quality Upgradation Support to MSMEs

Usually, an entrepreneur faces difficulty in upgrading the technology as well as quality. This scheme advocates the usage of Energy Efficient Technologies (EETs) in manufacturing units in order to lessen the cost of production and adopt clean development mechanism.

The scheme emphasis on enhancing the competitiveness of the MSME’s by means of Energy Efficiency and Product Quality Certification. The present scheme also deals with the concern involving the reduction in emission of greenhouse gas through this sector, by energy efficiency.

It likewise encourages MSMEs to get product certification and licenses from national and international entities.

The funding support of up to 75% for awareness programmes is given by the government, subjected to a maximum of Rs 75,000 per programme.

Design clinic for design expertise

This scheme is provided by the government for the increasing competitiveness of MSMEs through the adoption of design and its learnings. The government offers financial support of Rs 60,000 per seminar and 75% subject to a maximum of Rs 3.75 lakhs per workshop. The government's contribution is 75% for micro and 60% for SMEs for the project range amid Rs 15 lakh and Rs 40 lakh.

Lean manufacturing competitiveness for MSMEs

This scheme is provided in order to enhance the manufacturing competitiveness of MSMEs by means of the application of various Lean Manufacturing (LM) techniques. The monetary assistance is provided for implementation of lean manufacturing methods; primarily the charge of lean manufacturing consultant is paid 80% by the government and 20% by beneficiaries.

National manufacturing competitiveness programme

This MSME scheme intends at enabling technology up-gradation by means of providing 15% capital subsidy towards MSEs, which comprises tiny, khadi, village, and coir industrial units on institutional finance availed by them for induction of well-established as well as enhanced technologies in listed sub-sectors or products approved under the scheme.

ISO 9000/ISO 14001 certification reimbursements

This scheme offers s incentives to those SMEs/ancillary undertakings that have obtained ISO 9000/ISO 14001/HACCP certification. The scheme has been enlarged in order to comprise reimbursement of expenses in the acquisition of ISO 14001 certification.

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