India’s policy focus on strengthening the micro, small and medium enterprises (“MSME”) sector has increasingly relied on credit guarantee mechanisms to address structural constraints in access to finance. The recent decision of the Government of India to enhance the Mutual Credit Guarantee Scheme for MSMEs (“MCGS-MSME”) represents a continuation of this approach aimed at facilitating greater credit flow to manufacturing and export-oriented enterprises.
The enhancement of the scheme reflects a broader policy objective to enable MSMEs to invest in capital assets, improve productivity and integrate into global value chains. At the same time, it raises important questions regarding the role of credit guarantees as instruments of industrial policy, their interaction with financial regulation, and their implications for risk allocation within the banking system.
