A Detailed Guide on Govt support and collateral-free loans for MSMEs (Oct 2024)
In India, over 63 million MSMEs are playing a crucial role in powering the Indian economy to become a $7 trillion economy by 2030. MSMEs account for 30% of India’s GDP and 49.6% of overall exports and stimulate inclusive growth, entrepreneurship, and employment at the local level – MSMEs employ over 2 crore people.
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4,00,42,875 MSMEs are registered on the Udyam portal and the Udyam Assist Platform (UAP) – (March 2024)
Table of contents:
Introduction – MSMEs powering the Indian economy
The Government of India has launched many initiatives in recent years to maintain a very encouraging environment for entrepreneurs and MSMEs, and to boost business loans, streamline processes, and transition from traditional processes to digitalization. In the interim budget 2024-25, the Ministry of MSMEs announced a corpus totalling ₹ 1 lakh crore, offering 50-year interest-free loans. As per IBEF, this aims to incentivize the private sector, particularly MSMEs, to enhance research and innovation in emerging sunrise domains.
Despite these boosting measures and accelerated digitalization, the MSMEs sector still is challenged by a credit gap, estimated to be between ₹ 20 – 25 trillion. A larger % of MSMEs are micro and small enterprises operate in the informal sector – they don’t have collateral and financial accounting to establish a business track record, and are perceived as high risk entities for business loans. Reducing this credit gap and serving the base of under-served MSMEs has become the top priority task for the Govt as well as for Banks/NBFCs and FinTechs like ProFinTech.
1.How is the Indian Govt supporting & incentivizing MSMEs and business enterprises?
Recent data underscores the government’s substantial efforts to empower MSMES, which include the Finance Act 2024 with measures like enhanced tax incentives, subsidized credit, increased R&D grant etc, policy reforms, digitization of processes, and simplified compliance systems etc. We are highlighting a few of them here:
1.1 Increased financial support, Credit Guarantee and Collateral-free loans for MSMEs
- ₹22,137.95 crores has been allocated to support MSMEs’ operational requirements, capacity building, growth and research and innovation efforts, along with an additional ₹450 crores for technology-led solutions.
- The credit guarantee cover has been increased through the Credit Guarantee Fund Trust for MSEs (CGTMSE) – the Govt approved ₹2 lakh crore guarantees in FY24, the highest ever in a single fiscal year, to facilitate collateral-free loans to eligible MSMEs.
- The MUDRA loan limit for MSMEs has been increased from ₹10 lakh to ₹20 lakh for those who have successfully repaid their previous loans.
- Under Pradhan Mantri Mudra Yojana (PMMY), ₹5.41 lakh crore is sanctioned under 6.6 crore Mudra loans to non-corporate and non-farm MSEs (Micro Small enterprises).
- The Self-Reliant India (SRI) fund, with a corpus of ₹ 50,000 crore, has invested ₹ 7,593 crore in 424 MSMEs, across sectors like agriculture, pharma, auto, and chemicals, under the Aatmanirbhar Bharat scheme.
- With an overall incentive outlay of ₹1.97 lakh crore, the Production Linked Incentive (PLI) scheme covers 14 critical sectors – from electronics to pharmaceuticals to specialty steel to drones, primarily, to reduce import dependency and power India towards achieving the vision of Viksit Bharat 2047. The PLI has resulted in a significant boost in manufacturing output of ₹10.9 lakh crore as of June 2024 and created 8.5 lakh jobs.
For more latest updates on other initiatives, please visit.
1.2 Simplified Compliance for MSMEs
The GST, introduced 7 years ago, has reduced compliance stress on trade and industry, brought in transparency and supply chain optimization, and is becoming a modern alternative to collateral/heavy documentation when MSMEs need business loans.
The number of registered taxpayers grew to 1.46 crore from 65 lakh in 2017. Average monthly GST revenues increased to ₹1.90 lakh crore from ₹90,000 crore in 2017-18 – (ET Jun 2024)
Udyam registration has significantly benefited MSMEs – by providing a unique identification number, it is formalizing the MSME sector and is allowing MSMEs to access various Govt schemes, loans, subsidies and certifications.
The Finance ACT 2024 brings relief to MSMEs by simplifying their reporting process – with measures like reduced compliance burden, easier tax filing procedures, and streamlined record-keeping requirements. A new Single-window clearance system for MSME registration and approvals is also formed. These changes would reduce the administrative load on MSMEs as well as compliance costs.
Businesses with a turnover above ₹5 crore are mandated to generate e-invoices for their business transactions. GSPs (GST Suvidha Providers) simplify the process by providing APIs to integrate e-invoicing with existing business systems. This is expected to bring over 1 lakh MSMEs under the digital tax compliance fold, as per the GST Council’s reports.
1.3 Expanding Market access for MSMEs
Digital Platforms : The Government e-Marketplace (GeM) and the Open Network for Digital Commerce (ONDC) provide online platforms for MSMEs to connect with government buyers and consumers.
The Government e Marketplace (GeM) crossed GMV of ₹4 lakh crore in 2024 from ₹38,573 crore in 2021. The MSME segment contributed 49.37% of the total orders in 2024 – (BT Sep 2024)
Export Promotion : Schemes like the Market Access Initiative (MAI) and the Export Promotion Capital Goods (EPCG) provide financial and logistical support to MSMEs and help them enter international markets. The MDA (Market Development Assistance) scheme assists MSMEs to participate in international fairs, trade delegations, study tours etc.
Zero Defect Zero Effect (ZED) : This government initiative is aimed at improving the quality and sustainability of Indian manufacturing, especially among MSMEs. By offering financial incentives, technical assistance and certification, it encourages businesses to adopt world-class manufacturing practices, green methodologies, and reduce waste and energy consumption.
1.4 Skill development and Capacity building for MSMEs
The Ministry of Skill Development and Entrepreneurship (MSDE), through Indian Institute of Entrepreneurship (IIE) and National Institute for Entrepreneurship and Small Business Development (NIESBUD), is creating an inclusive entrepreneurial ecosystem – with a higher focus on women, marginalized communities, individuals from lower socio-economic backgrounds. Read more. Read More
The Union Budget 2024 has allocated a substantial budget of ₹2 lakh crore over the next 5 years for skill development and training programs designed to upgrade the skills of existing workforce and training younger entrants. To support MSME skill development, specific measures like upgrading the curriculum of ITIs with industry needs, the expansion of apprenticeship programs, digital skills training also are considered.
The Skill India mission has trained 1.4 crore youth, upskilled & reskilled 54 lakh youth and established 3000 new ITIs.
1.5 Special initiatives for Women & Minority-owned MSMEs
The govt has been committed to empower women & minority entrepreneurs, and foster inclusive economic growth. As on July 2024, there are over 18.4 million women-owned MSMEs in India.
- Public Procurement policy : This policy mandates that 25% of government procurement should be from MSEs, including 4% from SC/ST owned MSEs and 3% from women-owned MSEs.
- Enhanced Credit Guarantee for Women-owned MSMEs : The CGTMSE has increased the guarantee coverage for this set to 90% and reduced the annual guarantee fee.
- SAMARTH initiative : supports women-owned MSMEs with skill development and market development and works towards the objective of training more than 7500 women from rural and sub-urban areas. 20% of seats in free skill development programs organized under skill development schemes of the ministry are allocated for women entrepreneurs. 20% of MSME business delegations sent to domestic and international exhibitions under the Marketing assistance are allocated for women entrepreneurs. Read More
1.6 Subsidies for Technology upgradations by MSMEs
- Credit Linked Capital Subsidy Scheme (CLCSS) : Through this scheme, Govt is encouraging MSMEs to adopt the latest technologies. Under this, MSMEs can receive a 15% subsidy on institutional loans taken for technology upgrades and the adoption of Industry 4.0 – which is all about how digital technologies like cloud computing, big data analytics, AI, and the Internet of Things (IoT) can be incorporated into production operations.
- Zero Defect Zero Effect (ZED) scheme : This encourages MSMEs to adopt quality and environmental standards aligning with Industry 4.0 principles of efficiency and sustainability.
- MSME Champions Scheme : This is a comprehensive support for MSMEs, which includes funding for technology adoption, skill development and market access. Read More
- Digital MSME : This scheme encourages MSMEs to be digitally empowered and supports digital transformation initiatives, e-commerce, automation etc that are crucial for Industry 4.0 Read More
- ASPIRE, Scheme for Promotion of Innovation, Rural industry & Entrepreneurship : This aims to support the creation of Livelihoods Business Incubation (LBI) centres which encourage entrepreneurship and startups in the agro-industry. The implementation of this scheme has been given to Mentor Institutes (MIs), which are national or state-level institutions with expertise in rural industries, like IIE Guwahati.
These schemes and subsidies, along with many others, underscore the government’s focus and commitment to empower MSMEs, boost their global competitiveness, and strengthen them with comprehensive support to drive the nation’s economic growth.
*This article provides the latest information for some of the most popular and successful government schemes available for MSMEs in India. We also have provided link to the official government website for each scheme, which MSMEs can explore to get more details.