Credit Lifeline for Micro Enterprises: Govt to Roll Out ₹5 Lakh MSME Card Scheme

To ease persistent liquidity pressures faced by India’s micro enterprises, the government is set to launch a dedicated credit card scheme aimed at providing quick and flexible access to working capital. Tailored specifically for micro businesses registered on the UDYAM portal, this scheme offers a credit limit of up to ₹5 lakh per enterprise. The initiative reflects a growing policy focus on strengthening the financial backbone of India’s micro business segment, which employs over 75 million people and contributes 36% to the country’s manufacturing output and 45% to exports.

Challenges Faced by Micro Enterprises

• Delayed payments from larger buyers remain one of the most persistent challenges for micro enterprises, with receivables often taking up to 90 days or more to clear, creating significant cash flow gaps that disrupt day-to-day operations and limit the ability to reinvest in business activities.
• Limited access to timely and affordable working capital prevents many micro businesses from responding quickly to short-term needs such as purchasing raw materials, paying employees, or fulfilling new orders, as conventional banking systems often require extensive documentation or collateral that many micro units are unable to provide.
• The mismatch between credit billing cycles and business cash flows creates a structural problem for micro enterprises, where typical credit card billing periods of 30–45 days are insufficient to accommodate the longer payment timelines they face, leading to the accumulation of high-interest debt and financial stress.
• Low financial literacy among micro enterprise owners, many of whom are first-generation entrepreneurs or informal sector participants, often results in poor credit management, underutilization of available financial tools, or misuse of funds, which in turn affects their long-term creditworthiness and business sustainability.
• High interest rates on short-term credit products such as overdrafts or informal loans can compound financial burdens, particularly when enterprises rely on costly credit to bridge temporary liquidity gaps, leaving them vulnerable to debt cycles and reduced profitability.
• Difficulty in navigating formal financial systems and processes continues to exclude many micro enterprises from institutional lending support, especially those located in semi-urban or rural areas where banking outreach, advisory services, and credit risk assessments are still evolving.

The proposed MSME credit card scheme is designed to directly address these issues by offering a flexible credit line with a limit of up to ₹5 lakh. Each card will come with a standard interest-free period of 30–45 days depending on the issuing bank. After this period, interest rates—currently at 2% to 2.5% per month—may be reduced through government negotiations with banks to better align with the 90-day receivables cycle common among MSMEs.

Importantly, instead of providing interest subvention, the government plans to back loans through existing credit guarantee frameworks such as the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) and the Credit Guarantee Fund for Micro Units (CGFMU). This reduces risk for banks and encourages more affordable lending. One million cards are expected to be issued in the first year.

To support first-time credit users, the government is also investing in financial education modules and safeguards to prevent misuse. This initiative is part of a wider MSME push in Budget 2025–26, which also includes higher investment limits for classification, extended credit guarantees, and targeted schemes for entrepreneurs in sectors like leather, footwear, and toys.

Expected to launch by September 2025, the credit card scheme marks a significant step in improving liquidity access and financial discipline among India’s micro enterprises.