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How Has The ECLGS Scheme Become A Lifeline for MSMEs in India?

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Since its launch, the Emergency Credit Line Guarantee Scheme (ECLGS) has helped more than 1.15 crore MSMEs in India, sanctioning loans worth Rs.2.86 lakh crore. 

The Government of India (GOI) launched ECLGS loan schemes to mitigate the financial stress caused by the COVID-19 pandemic on several industrial sectors. The following will discuss the particulars of the ECLGS scheme and how it benefits MSMEs.

How has ECLGS saved numerous MSMEs in India?

The COVID-19 pandemic caused significant stress to several sectors across the country as businesses struggled to meet working capital requirements. To help the pandemic-hit economy, GOI launched ECLGS, providing a 100% guarantee to financial institutions for emergency credit facilities given to MSMEs. 

Hence, ECLGS was a great relief for small businesses, which were grappling with numerous issues like shortage of labour, liquidity crisis, high default risks and non-payments etc. 

The scheme was first introduced in May 2020 as a part of the Aatmanirbhar Bharat Abhiyan relief package. It was extended first to November 2020, then to March 2021 and recently to 31 March 2022.

What are the different ECLGS schemes?

Since its first introduction, ECLGS has witnessed several changes with some eligibility criteria relaxed and more MSMEs eligible for loans with longer tenors. The different iterations of the scheme are:

ECLGS 1.0: GOI launched ECLGS as the COVID-19 relief package Aatmanirbhar Bharat Abhiyan to provide collateral-free loans to MSME. ECLGS loans have a maximum tenor of 4 years and a moratorium period of 1 year.

ECLGS 2.0: In November 2020, the Finance Minister extended ECLGS to support 26 sectors under financial distress. It also extended the ceiling for outstanding credit to Rs.50 crore and the maximum tenor to 5 years.

ECLGS 3.0: On 31 March 2021, GOI widened the scope of the scheme to support the travel, tourism, sports and hospitality sectors. Under ECLGS 3.0, MSMEs could get a credit of up to 40% of the total outstanding. In addition, it extended the maximum tenor to six years and the moratorium to two years.

Features of ECLGS loans

Given below are some of the salient features of ECLGS:

  • Types of loans supported: Under this scheme, borrowers can avail business loans, which are unsecured loans that require no collateral. 
  • 100% guarantee: The Government provides a 100% guarantee of up to Rs.2 crore to financial institutions for funds sanctioned under this scheme. 
  • Substantial credit support: Existing borrowers under ECLGS 1.0 and 2.0 can get credit support of 10% of their credit outstanding. Borrowers who did not opt for this scheme can get maximum credit support of 40% of their credit outstanding.
  • Interest rate: SME loan interest rate under this scheme is capped at 14% for NBFCs.
  • Tenor: ECLGS loans can have a maximum tenor of 4 years from the date of disbursement.
  • No extra charges: Financial institutions cannot charge anything for processing, prepayment or foreclosure for loans under this scheme. Moreover, borrowers can get a business loan without collateral with ECLGS.

In case you do not qualify for ECLGS loans, financial institutions make it easier for MSMEs to avail loans by providing pre-approved offers. They offer this facility for several modes of financing like credit cards, personal loans and business loans. You can check your pre-approved offer in an instant by entering your name and contact information. 

Following the second wave of the pandemic, the Government has expanded the Rs.3 trillion scheme, dubbing it the ECLGS 4.0. Now, the civil aviation sector can get ECLGS loan relief while the hospitals can get funds for on-site oxygen generation. In addition, the eligibility criteria for companies in sports and leisure, hospitality and travel and tourism sectors have been lowered. 


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