How the Union Budget 2025-26 Enhances Credit Access for MSMEs?

The Union Budget 2025-26 has taken significant steps to increase credit availability to Micro, Small, and Medium Enterprises (MSMEs). MSME contributes nearly 30% of India’s GDP and employs over 200 million people, making them crucial for economic growth.

Despite their significance, MSMEs struggle with formal credit access due to strict collateral requirements and high interest rates. 

This blog explains how the Union Budget 2025-26 meets these challenges by proposing directed financial interventions, regulatory reforms, and structural changes. All of these are directed at enhancing access to credit and encouraging the development of MSMEs.

How Does Union Budget 2025-26 Improve Access to Credit for MSMEs?

The Union Budget for 2025-26 addresses these concerns by introducing a comprehensive policy package aimed at enhancing access to credit for MSMEs. 

These include introducing the Micro Enterprises Credit Card (ME-Card), large-scale credit guarantee schemes, and a new MSME classification structure.

The following table shows the new MSME classification and how new investment and turnover limits affect it.

Let's discuss each of the initiatives and their potential impact.

1. Micro Enterprises Credit Card (ME-Card) - Offering Instant Liquidity

One of the prominent initiatives is the ME-Card launch, where the goal is to provide micro-enterprises with collateral-free, revolving credit. The card offers a credit limit of up to ₹5 lakh for essential business needs like raw material procurement, electricity bills, and statutory dues. 

Part-time CFO services can assist MSMEs in managing finances with the ME-Card, ensuring responsible fund utilization and improved cash flow management..

The ME-Card will rely on digital imprints (e.g., GST turnover, Udyam registration data) for easy and quick credit determination. It eliminates the need for financial statements or collateral, reducing barriers for businesses that lack assets to pledge.  

The government plans to issue 1 million (10 lakh) ME-Cards in the first year, prioritising  Udyam registered micro-enterprises without existing  credit lines.  

2. Extended Credit Guarantee Scheme - Reducing Risk for Lenders

Another critical step in the Union Budget is widening the Credit Guarantee Scheme. The Credit Guarantee cover for micro and small enterprises has been enhanced from ₹5 crore to ₹10 crore per loan. This will likely release ₹1.5 lakh crore of additional credit in the next five years, covering 6.8 lakh MSMEs, including 22% women-owned units.

For startups, the guarantee cover has been raised from ₹10 crore to ₹20 crore, and the guarantee charge has been lowered by 1% for startups in 27 priority sectors like renewable energy, artificial intelligence (AI), and electric vehicles (EVs). In addition, export-oriented MSMEs have been enhanced to ₹20 crore per loan, aiming to improve access to credit for expansion and working capital needs.

Enhanced credit guarantees reduce lenders' risks, encouraging greater MSME financing. As a result, the new scheme reduces risks and lowers the cost of credit for MSMEs, enabling them to expand and grow. To stay financially agile, MSMEs may consider appointing a part-time CFO who can steer credit planning, compliance, and scalable growth strategies.

3. Revised MSME Classification - Enabling Seamless Growth The Union Budget 2025-26 also revises the investment and turnover thresholds for MSMEs.   The thresholds have been significantly increased. For micro-enterprises, the investment limit is raised from ₹1 crore to ₹2.5 crore, and the turnover limit from ₹5 crore to ₹10 crore. Similarly, for small enterprises, the investment limit is raised from ₹10 crore to ₹25 crore, and the turnover limit from ₹50 crore to ₹100 crore.  

This revision is carefully crafted to prevent the "graduation penalty" which previously led to MSMEs losing benefits as they scaled up . With the new limits, an estimated million businesses can continue to access priority sector lending, ensuring sustained growth and financial flexibility. A part-time CFO can assist MSMEs in navigating these changes , optimising financial planning and securing uninterrupted credit access for expansion.

4. Global Push for Export - Drive MSME

India's export-oriented MSMEs will be facilitated with focused assistance, such as collateral-free loans of up to ₹20 crore for expansion schemes. The sectors of focus in leather, footwear, and toys are expected to enhance India's export capability to a turnover of ₹4 lakh crore by 2030.

Moreover, these businesses will also be able to avail of foreign currency loans, allowing them to hedge against exchange rate risks. The program also generates 22 lakh new jobs in the export industry, further enhancing India's international trade presence. For MSMEs looking to expand internationally, part-time CFO services can offer strategic insights and financial planning. They ensure smooth access to funds and optimized international operations.

5. Fund of Funds for Startups - Catalyzing Innovation

The Budget 2025 has allocated ₹10,000 crore for a Fund of Funds to improve credit access for startups.  The fund will co-invest in Series B+ stage startups in IoT, Industry 4.0, and global sectors. The scheme is projected to create economic activity through required capital for scaling. 

This initiative will create thousands of employment opportunities, primarily in the tech industry. Startups seeking to use these funds can benefit from engaging a part-time CFO firm to ensure effective utilization for growth, innovation, and scaling operations.  

6. Regulatory Reforms and Digital Integration - Simplifying Compliance

The Finance Minister announced the formation of a high-level committee to simplify regulatory processes, aiming to strengthen trust-based economic governance and reduce the compliance burden on MSMEs. Digital integration will play a key role in streamlining approval processes, such as issuing ME-Cards and export permits.  

This step aims to enhance India's ease of doing business ranking and simplify compliance procedures for MSMEs.  To fully leverage these changes, MSMEs can hire a part-time CFO to simplify regulatory compliance and implement digital tools that improve operational efficiency.  

Conclusion

The Union Budget 2025 MSME credit access introduces a set of initiatives for enhancing credit availability for MSMEs, from the introduction of the ME-Card to stronger credit guarantee programs and regulatory reforms. These efforts are a major step in addressing the persistent credit challenges of MSMEs, preparing them for growth and global competition.

With the support of part-time CFO services offering expert financial planning and guidance, MSMEs can seize these opportunities to expand, innovate, and contribute to India's economic growth.  

FAQs

1. What are the benefits of MSME in Budget 2025? 

The Union Budget 2025 emphasizes promoting MSMEs by offering easier access to financing, tax breaks, and enhanced credit guarantee schemes. It aims to boost growth, create jobs, and support innovation, including by enabling businesses to hire a part-time CFO for better financial management.

2. What is the new MSME classification criteria announced in Union Budget 2025-26? 

The Budget 2025-26 introduces a revised MSME classification based on annual turnover, providing clear-cut eligibility for support schemes. MSMEs can now easily hire part-time CFO services to align with the new framework and optimize their financial strategies.

3. What is the budget of credit guarantee scheme for MSME? 

The Government has allocated substantial funds to the Credit Guarantee Scheme for MSMEs in Budget 2025, aiming to increase access to collateral-free loans. This supports MSMEs to enhance financial management, including options to hire a part-time CFO for strategic planning and growth.