Government Plans Low-Cost Credit Cards for MSMEs

In a major financial innovation tailored to India's vast micro-enterprise sector, the government is set to introduce low-cost credit cards with a limit of ₹5 lakh to help micro units meet urgent working capital requirements. The proposed scheme, expected to be rolled out by September 2025, will carry credit guarantee backing—a first for such a financial product—and aims to make credit affordable and accessible for millions of small business owners.

According to government sources, the scheme is being fine-tuned in alignment with the Union Budget 2025-26, which focused heavily on MSME empowerment and expanding access to credit for micro and small firms.

What the Scheme Offers

• Credit limit of ₹5 lakh per card

• Interest-free period of 30–45 days

• Lower post-period interest rates, made possible by a credit guarantee cover

• No direct interest subvention, but reduced risk for banks via CGTMSE or CGFMU tie-ups

The cards will be tailored for micro enterprises registered on the Udyam portal, addressing an urgent need for fast, collateral-free credit amid liquidity stress and delayed payments.

Tackling MSME Cash Flow Challenges

Small businesses, particularly micro units, frequently face working capital disruptions due to payment delays from larger clients, often stretching beyond 90 days. This impedes their ability to pay suppliers, handle wages, and sustain production cycles.

By issuing one million credit cards in the first year, the government hopes to bridge this working capital gap without burdening entrepreneurs with unmanageable debt.

“The challenge is balancing the credit cycle, interest rates, and financial education for customers,” a senior government official told Financial Express.

The government is actively in talks with banks to evolve a structure where, after the interest-free period, micro firms pay a substantially lower interest rate, thanks to the guarantee backing from credit guarantee schemes.

Financial Literacy and Sustainable Implementation

Acknowledging that most micro-entrepreneurs lack deep financial understanding, the government is approaching the scheme cautiously. Once launched, it can’t be abruptly discontinued, so officials are working to plug all potential loopholes from the beginning.

This includes educating micro enterprises on credit card management, ensuring that repayment cycles align with cash flow patterns, and ensuring responsible usage without over-indebtedness.

Strengthening the MSME Ecosystem

With over 1 crore registered MSMEs employing 7.5 crore people, contributing 36% to manufacturing output and 45% of India's exports, this segment is critical to India’s ambition of becoming a global manufacturing hub.

Other key measures announced in the 2025-26 Union Budget include:

• Enhanced credit guarantee coverage for startups, micro and small businesses

• Financial support for first-generation entrepreneurs from underprivileged backgrounds

• Sector-specific productivity schemes in areas like footwear, leather, and toy manufacturing

• Raised investment and turnover limits to help MSMEs scale and stay competitive

The Road Ahead

This credit card initiative signals the government’s broader push toward formalising micro business finance, reducing their dependence on informal lenders, and democratising credit access.

By offering a blend of affordable interest rates, risk mitigation for lenders, and financial literacy support, the government is looking to create a sustainable, inclusive credit ecosystem that drives economic growth from the grassroots.