Context: The Union Cabinet on Monday approved additional funding of up to ₹3 lakh crore to micro, small and medium enterprises (MSME) as part of the ₹20 lakh crore economic package.

More on the news:

  • Under the scheme, 100% guarantee coverage will be provided by National Credit Guarantee Trustee Company Limited (NCGTC) to eligible MSMEs and interested borrowers of the MUDRA scheme.
    • It will be provided in the form of a Guaranteed Emergency Credit Line (GECL) facility.
    • The tenure of loan under this scheme will be four years with a moratorium period of one year on the principal amount. 
    • No guarantee fee will be charged by NCGTC. 
    • Interest rates on loans extended by banks and financial institutions will be capped at 9.25%, and 14% for those extended by non-banking financial companies (NBFCs).

Issues with the Banking Sector

  • The banking sector seems to be risk averse as the government is not giving a direct guarantee.
    • It is of the view that the current credit guarantee scheme is similar to the CGTMSE [Credit Guarantee Fund Trust for Micro and Small Enterprises] scheme. 
    • The claims will not be settled unconditionally. 
  • Since the scheme is not directly guaranteed by the government, banks still have to attach a risk weight of 20% for the loans. 
    • And, if the claim is not settled, banks have to make provision in line with the period of default.

Other proposals approved by the Cabinet

  • The Cabinet also approved a subsidy of almost ₹3,110 crore for distribution of extra foodgrains to about eight crore migrant workers and their families.
  • It also approved a new centrally-sponsored scheme to support micro food processing units at an outlay of ₹10,000 crore.
    • The scheme will be implemented over a five-year period and will benefit about two lakh self-help groups, farmer producer organisations and other small units through a credit-linked subsidy.
  • It also approved the Pradhan Mantri Matsya Sampada Yojana, a scheme announced in the latest Budget, to develop the fisheries sector over a five-year period.
  • The Cabinet Committee on Economic Affairs also approved the adoption of a new methodology for the auction of coal and lignite blocks on a revenue-sharing basis. 
    • The tenure of coking coal linkage was increased to 30 years.
    • It will also permit commercial exploitation of coal-bed methane in the mining lease area. Rebates in revenue share payments will be given in the event of an early production of coal from the mine. 
    • Further rebates will be offered for gasification of coal to encourage environment-friendly actions.

National Credit Guarantee Trustee Company Ltd (NCGTC)


  • It is a private limited company incorporated under the Companies Act 1956, established by the Department of Financial Services, Ministry of Finance, as a wholly owned company of the Government of India.
    • It acts as a common trustee company for multiple credit guarantee funds.
    • Credit guarantee programmes are designed to share the lending risk of the lenders and in turn, facilitate access to finance for the prospective borrowers.
  • Presently, there are five dedicated credit guarantee Trusts under the Management of NCGTC viz. 
    • Credit Guarantee Fund Scheme for Educational Loans (CGFEL)
    • Credit Guarantee Fund Scheme for Skill Development (CGFSD)
    • Credit Guarantee Fund Scheme for Factoring (CGFF)
    • Credit Guarantee Fund for Micro Units (CGFMU) and 
    • Credit Guarantee Fund for Stand Up India (CGFSI)

Emergency Credit Line Guarantee (ECLG)


  • It came in as a specific response to the unprecedented situation caused by COVID-19 and the consequent lockdown, which has severely impacted manufacturing and other activities in the MSME sector.
  • The Scheme aims at providing MSMEs with additional funding of up to Rs. 3 lakh crore in the form of a fully guaranteed emergency credit line.


  • Provide an incentive to Member Lending Institutions (MLIs), i.e., Banks, Financial Institutions (FIs) and Non-Banking Financial Companies.


It will facilitate MSMEs to meet operational liabilities and will also help MSMEs in rebooting their businesses.


Image Source: The Hindu