The government is working on a scheme to assist micro businesses meet their immediate needs for working capital by giving them credit cards with a Rs 5 lakh maximum. This plan will offer credit guarantee coverage for micro businesses, which is a first for this kind of program.
Credit cards now provide an interest-free period of up to 30 to 45 days, however this might vary from card to card and bank to bank. Banks impose 2–2.5% interest per month or 25–30% interest per year once the interest-free period ends. Some banks charge significantly more.
Fixing Cash Flow Problems for Small Units
Small businesses typically have trouble with cash flow, especially when bigger corporations don’t pay them on time, which might take up to 90 days or more. This might make it harder for them to pay for operations, suppliers, and salaries, which could throw off production cycles.
After the budget was announced, plans are being made to provide personalised credit cards to small businesses that are registered on the Udyam site. There will be 1 million of these cards distributed in the first year.
“The challenge is balancing the credit cycle, interest rates, and financial education for customers,” a senior official said. The government wants to avoid making a big debt, therefore it is looking at current guarantee programs to lower interest rates.
The government is aware that it will be hard to pay off credit card debts in full in 30 to 45 days when cash flow cycles in smaller businesses are typically 90 days or longer.
So, it is discussing with banks on how to set up a system so that these tiny entities only have to pay a lesser interest rate on their debts when the interest-free period ends.
Guarantee Backing to Lower Costs
However, the government won’t provide credit card companies any direct help via the program.
“But a credit guarantee is something which we can cover so that the risk comes down and the losses come down for banks. So, the customer is given the benefit of pricing on that, and the interest rate is brought down to a level which is manageable to the customer,” another official said.
The government wants to combine the plan with CGTMSE or CGFMU to ensure credit guarantee coverage supports repayment of credit card dues.
“The goal is to keep the interest rate manageable to prevent debt burdens,” the official said, adding that the scheme could be ready by September.
Often, people who manage tiny businesses don’t know enough concerning money to grasp how a credit card works. Once the plan is in place, it won’t be easy or quick to shut it down. So, the government is keen to address all possible problems at the beginning itself.
There are more than 1 crore registered MSMEs in the nation. They employ 75 million people and are responsible for 36% of the country’s manufacturing and 45% of its export growth. Stability of the MSME sector is important to further India’s position as a global manufacturing hub.
The Union Budget for 2025–26 introduced a series of steps to help MSMEs become stronger. The restrictions on investment and turnover for MSME categorisation have been increased to enable firms to grow and work more efficiently. The scope of credit guarantee coverage for micro and small businesses, startups, and export-oriented MSMEs is being expanded, which will make it easier for them to get loans. A new program will help first-time business owners from low-income families with money, while sector-specific programs will make manufacturing more productive in sectors like making shoes, leather goods, and toys.