India Approves Rs 2.55 Lakh Crore Credit Guarantee Scheme for MSMEs

The Union Cabinet of India has approved an emergency credit line guarantee scheme amounting to ₹2.55 lakh crore, designed to assist businesses, particularly Micro, Small and Medium Enterprises (MSMEs), in overcoming the difficulties arising from the ongoing conflict in West Asia.

The scheme offers 100% credit guarantee coverage for MSMEs and 90% for non-MSMEs. It also includes a provision for ₹5,000 crore in credit support specifically for the airline industry. Under this initiative, loans will be granted to businesses without the imposition of guarantee fees.

For the aviation sector, the repayment period will be seven years from the date of the first disbursement, which includes a two-year moratorium on payments. Other sectors will benefit from a five-year repayment period, with a one-year moratorium.

Eligibility for the scheme extends to MSMEs and non-MSMEs possessing existing working capital limits, as well as scheduled passenger airlines that have outstanding credit facilities as of March 31, 2026. The government has stated that the initiative aims to empower businesses to navigate the hurdles created by the conflict and is expected to sustain operations, secure jobs, and maintain supply chains.

The credit guarantee scheme represents a significant step toward ensuring additional working capital for businesses, especially for MSMEs and the airline sector. By facilitating timely access to liquidity, the scheme is intended to bolster business sustainability and foster uninterrupted domestic production.

The scheme will provide additional credit of up to 20% of peak working capital utilised during the January-March 2026 quarter, with a cap set at ₹100 crore for most businesses. In contrast, the airline sector can obtain up to 100% additional credit, capped at ₹1,500 crore per borrower, subject to specific conditions.

By enabling easier access to funds, the government aims to enhance the resilience of the business ecosystem and address the financial strains caused by external geopolitical factors. The approval of this scheme reflects the government's commitment to supporting key sectors as they navigate a complex economic landscape.