100% Guarantee for MSMEs under ECLGS 5.0; Cabinet Rolls Out Fresh Credit Lifeline

Moneylife Digital Team 06 May 2026

Economy & Nation

The Union Cabinet, chaired by prime minister (PM) Narendra Modi, has approved the rollout of the emergency credit line guarantee scheme (ECLGS) 5.0 to provide additional liquidity support to businesses impacted by the ongoing West Asia crisis. The scheme aims to facilitate a total additional credit flow of around ₹2.55 lakh crore, including a dedicated ₹5,000 crore window for the airline sector.

Under ECLGS 5.0, credit guarantee coverage will be extended through the National Credit Guarantee Trustee Company Ltd (NCGTC) to member lending institutions (MLIs) for additional loans sanctioned to eligible borrowers.

The government has provided for 100% guarantee coverage for micro, small and medium enterprises (MSMEs), while non-MSMEs and airlines will receive 90% coverage on the credit extended under the scheme. The guarantee will apply to the amount in default, thereby reducing lending risks for banks and financial institutions.

The scheme covers MSMEs, non-MSMEs with existing working capital limits and scheduled passenger airlines with outstanding credit facilities as of 31 March 2026, provided their loan accounts are classified as standard.

Eligible borrowers can avail additional credit of up to 20% of the peak working capital utilised during the fourth quarter of FY25-26, subject to a cap of ₹100 crore. For airlines, the support can extend up to 100% of their requirement, capped at ₹1,500 crore per borrower, subject to specific conditions.

Importantly, no guarantee fee will be charged under the scheme, making it more attractive for borrowers and lenders alike.

For MSMEs and non-MSMEs (excluding airlines), the loan tenure has been fixed at five years, including a moratorium of one year on repayment. In the case of airlines, the tenure extends to seven years, with a two-year moratorium.

The guarantee cover will remain co-terminus with the loan tenure, ensuring risk mitigation for lenders throughout the repayment period.

The scheme will remain open for loans sanctioned from the date of issuance of operational guidelines by NCGTC until 31 March 2027.

The government says the scheme is designed to help businesses manage short-term liquidity mismatches arising from global disruptions linked to the West Asia conflict.

By enabling access to timely working capital, ECLGS 5.0 is expected to support business continuity, safeguard jobs and stabilise supply chains across sectors. The scheme also aims to sustain domestic production and reinforce economic resilience amid external uncertainty.

The latest version builds on earlier iterations of the ECLGS framework which were introduced during the COVID-19 pandemic to support businesses facing financial stress.

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