Budget 2025: Credit cards, guarantee scheme at the centre of FM's loan push

Mumbai: Finance minister Nirmala Sitharaman on Saturday announced a slew of measures to boost availability of credit to small businesses and street vendors through a guarantee scheme and credit cards.

First, Kisan Credit Cards (KCC) loan limit will be increased to ₹5 lakh, from ₹3 lakh earlier, according to the Union budget proposal. Started in 2008, the KCC scheme is meant to allow farmers access credit. As of 31 March 2024, total amount outstanding under the KCC scheme stood at ₹9.8 trillion, up from ₹8.9 trillion in FY23, and ₹9.4 trillion in FY22, as per data presented in the Lok Sabha on 30 July 2024. 

Second, the government will increase the credit guarantee cover for a clutch of sectors. These include doubling the limit for small businesses to ₹10 crore, leading to additional credit of ₹1.5 trillion in the next five years; doubling the limit for startups to ₹20 crore with the guarantee fee at 1% for loans in 27 focus sectors; and a guarantee cover of up to ₹20 crore for “well-run exporter MSMEs” (micro, small and medium enterprises), for term loans up to ₹20 crore.

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Bankers and industry experts lauded the government’s focus on small businesses and agriculture. “The enhancement of the Kisan Credit Card (KCC) loan limit to ₹5 lakh is a huge development which will help farmers improve agricultural productivity,”  said Ajay Kumar Srivastava, managing director and chief executive, Indian Overseas Bank. 

“Also the increase in the guarantee cover for MSME from ₹5 crore to ₹10 crore and for startups from ₹10 crore to ₹20 crore will foster entrepreneurship, create job opportunities and improve the business environment,” said Srivastava.

Industry experts said the MSME sector will immensely benefit from these moves. Kishore Lodha, chief financial officer at UGRO Capital, a non-bank financier lending to small businesses, said that expansion of the guarantee scheme for micro and small enterprises will increase credit flow to this segment. “Additionally, 10 lakh credit cards will be issued to MSMEs, helping them manage working capital more effectively,” said Lodha.

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Sitharaman also announced the introduction of credit cards with a ₹5 lakh limit for micro enterprises registered on Udyam portal. Fourth, the government will also revamp the PM SVANidhi scheme with enhanced loans from banks and UPI-linked credit cards with a ₹30,000 limit. Launched in June 2020, the scheme is meant to allow street vendors to access affordable working capital loans. As per Sitharaman, it has benefitted more than 6.8 million street vendors.

Others said the budget announcements reflect a step towards transforming India’s payments ecosystem and enhancing financial inclusion.

“The focus on making UPI-linked credit cards accessible to street vendors under the PM SVANidhi scheme and extending credit to 10 lakh micro-enterprises through Udyam-registered credit cards will have a direct impact on empowering underserved communities and accelerating the growth of India’s entrepreneurial spirit,” said Mihir Gandhi, partner and payments, transformation leader, PwC India. 

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