Enhanced mudra loans and new credit models, MSME sector receives attention in Budget 2024-25

In the first Union Budget announcement by Finance Minister Nirmala Sitharaman following Prime Minister Narendra Modi’s third term, the micro, small, and medium enterprises (MSMEs) sector received significant attention, with a particular focus on the enhancement of Mudra loans.

The Union Budget 2024-25 has been described as giving special attention to this underserved sector. Here’s a detailed look at what was announced for this key growth engine of the economy.

Credit Guarantee Scheme for MSMEs and Manufacturing Businesses

This scheme is designed to support MSMEs by facilitating the purchase of machinery and equipment. It offers term loans for MSMEs in the manufacturing sector to buy machinery and equipment without requiring collateral or a third-party guarantee. A self-financing guarantee fund will provide coverage up to ₹100 crore per applicant, with borrowers required to pay an upfront and annual guarantee fee based on the reducing loan balance.

New Assessment Model for MSME Credit

Public sector banks will enhance their in-house capabilities to assess the creditworthiness of MSMEs using new credit assessment models based on digital footprints rather than traditional metrics like turnover. This will also cover MSMEs without a formal accounting system.

Credit Support During Stress Periods

A new mechanism will ensure continued bank credit to MSMEs during stressful periods, particularly when they are in special mention accounts (SMA) due to uncontrollable circumstances, helping them avoid falling into non-performing asset (NPA) status.

Enhanced Limit for Mudra Loans

The limit for Mudra loans will be increased to ₹20 lakh from the current ₹10 lakh for entrepreneurs who have successfully repaid previous loans under the ‘Tarun’ category.

Mandatory Onboarding for Working Capital

To help MSMEs unlock working capital, the turnover threshold for mandatory onboarding on the TReDS platform will be reduced from ₹500 crore to ₹250 crore. This change will bring 22 more central public sector enterprises (CPSEs) and 7,000 additional companies onto the platform.

Expansion of SIDBI Branches

SIDBI will open new branches to serve all major MSME clusters within three years, with 24 new branches opening this year, expanding service coverage to 168 out of 245 major clusters.

Support for Food Irradiation and Testing Units

Financial support will be provided to establish 50 irradiation units in the MSME sector to enhance quality and safety testing. Additionally, the setup of 100 NAB-accredited food quality and safety testing labs will be facilitated.

E-commerce Export Hubs

E-commerce export hubs will be established through public-private partnerships to enable MSMEs and traditional artisans to sell their products in international markets. These hubs will provide a seamless regulatory and auditing framework to facilitate trade and export-related services.

Ease of Doing Business

To enhance the ‘Ease of Doing Business’, the government is working on the Jan Vishwas Bill 2.0. Additionally, states will be incentivized for implementing their Business Reforms Action Plans and for digitalization efforts.

With enhanced Mudra loans, new credit models, and various supportive measures, Sitharaman stated that the government aims to strengthen the MSME sector, helping it grow and compete globally.