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On 2nd November 2018, the Ministry of Micro, Small, and Medium Enterprises (MSMEs), that falls under the Government of India, announced the ‘Interest Subvention Scheme for MSMEs’. Under this scheme, GST registered MSMEs can avail a 2% subvention on the interest rate of a new or incremental loan.


The term ‘subvention’ refers to money granted by the government. In the context of the government budget, interest subvention essentially means that the government would be paying some part of the interest on a loan. A subvention is offered by the government usually on home loans, education loans, and agriculture loans.  This scheme was initially limited only to scheduled commercial banks. However, considering the effect of the pandemic, this scheme was extended by the Government of India to also include co-operative banks that became eligible as lending institutions from 3rd March 2020 onwards. One of the aims of this scheme was to grant MSMEs increased access to credit. 


Initially announced for just two years (2018-19 and 2019-20), the Interest Subvention Scheme has been extended to the financial year 2020-21. This is in an attempt to offset the low business volumes that may have resulted from the mobility and trade restrictions due to the pandemic. And to also encourage MSMEs to opt for credit streams to fund their business operations.

What are MSME loans?

MSME loans essentially are ‘unsecured’ loans offered by financial institutions. MSMEs may draw the loan in order to fulfil financial requirements for their business. Eligibility criteria for the loans in are quite specific and need to be met to avail the credit.

The Government of India and the Reserve Bank of India define MSME loans as ‘loans for business enterprises for support in terms of finance, infrastructure and other areas.’


Many financial institutions offer these loans. Sometimes they are offered under government schemes such as–


  • Credit Guarantee Funds Trust for Micro and Small Enterprises (CGTMSE)
  • Prime Minister’s Employment Generation Programme (PMEGP)
  • Micro Unit Development and Refinance Agency (MUDRA Loan)
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How are micro, small, and medium enterprises classified?

The Government of India redefined the initial classification criteria for MSMEs underlined in the MSME Act, 2005. From July, 2020 onwards, a new categorisation of MSMEs may be considered. It takes two factors into consideration. 

First is the amount of capital investment in plant and machinery (P&M), and equipment. The second is the annual turnover. 


Enterprises with an investment in P&M/equipment of upto Rupees 1 crore and an annual turnover of up to Rs. 5 crores are classified as ‘Micro’. Enterprises with an investment in P&M/equipment of up to Rs. 10 crores and annual turnover of up to Rs. 50 crores are to be considered ‘Small’ enterprises. And the category of ‘Medium enterprises’ includes those with an investment capital of Rs. 50 crores and a turnover of up to Rs. 250 crores. The government can determine the turnover slab a company belongs to, by assessing the GST filings and data.

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What does the Interest Subvention Scheme cover?

One of the aims of the Interest Subvention Scheme is to provide initiative to MSMEs for onboarding onto the GST platform.

This would facilitate easy credit access for the enterprises and aid the government in formalising the MSME sector - which is a significant contributor to the Indian economy. 


The Interest Subvention Scheme covers loans and working capital of upto Rs. 100 Lakhs. However, loan accounts with a ‘Non-Performing Asset’ status on the day of application for the claim will not be eligible under this scheme. The interest subvention cannot be availed during the period in which the account is a Non-Performing Asset or NPA. If an enterprise has outstanding loan repayments, it may be considered as NPA.

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Can start-ups avail this subvention?

Start-ups are not covered under the government’s definition of MSMEs. However, start-ups belonging to or operating in manufacturing and service sectors can register themselves as an MSME. They would need to register on the Udyog Aadhar Portal.  By registering as an MSME, start-ups can avail tax exemptions, credit access, and other benefits under the Atmanirbhar Bharat Abhiyan


Extension of the Interest Subvention Scheme has brought on a wave of relief for MSMEs who have persevered through the market swings and business roadblocks. Mobility restrictions have affected logistics chains, so the effect was observed across value chains including manufacturing, distribution and service. 

A reduction in the interest rates means that institutions have more capital left with them to invest in their business plans. Including co-operative banks as lenders impacts the accessibility of MSMEs to viable loans.


At Bajaj Markets, you can avail MSME business loans to expand your business operations. Applying and getting approval for a business loan with Bajaj Markets takes only 3 minutes. With zero collateral requirements, long repayment tenure and an ample loan limit, your enterprise can get the support it deserves through Bajaj Markets. 

Read more about CIBIL MSME Rank

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