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Published on:

April 30, 2025

Alankar Mishra

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Interest Subvention Scheme for MSMEs

India’s MSME (Micro, Small & Medium) Enterprises are the very foundation of its economy. It generates jobs, aids in industrial growth, and promotes the development of rural and semi-urban areas. Sadly, one of the greatest challenges MSMEs have to deal with is expensive loans and increased interest rates.

The Government of India has come up with a powerful weapon for small businesses- the Interest Subvention Scheme for MSMEs. The scheme focuses primarily on alleviating the interest burden of loans on MSMEs, which allows them to access credit at much lower rates and recover and grow without facing financial difficulties.

In this article, we will cover everything you need to know about the Interest Subvention Scheme under MSMEs in 2025 in a detailed, easy, and SEO-friendly manner.

What is the Interest Subvention Scheme for MSMEs?

In simpler terms, we can say that Interest Subvention means “interest subsidy or interest discount”. Under this program, the Government give a discount of 2% per annum on the interest rate for MSME loans taken through eligible banks.

For instance, a bank may charge an interest rate of 9%. If the MSME is eligible under this scheme, the MSME will effectively pay 7% interest (after 2% subvention provided by the government).

The scheme seeks to relieve some of the financial pressure faced by small businesses and motivate them to secure additional loans for development and growth.

Objectives of Interest Subvention Scheme for MSMEs

Lower interest rates for small businesses.

Make loans cheaper.

Enhance the use of banking and online payment services by MSMEs.

Motivate MSMEs to register formally.

Increased production, jobs, and exports are associated with the MSME sector.

Aid MSMEs in overcoming slowdowns or crises.

Who is Eligible for the Interest Subvention Scheme for MSMEs?

To avail the benefits of this scheme, the MSME must meet certain conditions:

1. Registered MSMEs

Must have valid Udyam Registration (Earlier Udyog Aadhaar Number).

MSME should be engaged in the manufacturing or service sector.

2. GST Registered

MSMEs should have a valid GST Number.

3. Loan Criteria

The loan must be from a Scheduled Commercial Bank.

Applicable on Fresh Loans and Incremental Working Capital Loans.

Maximum loan eligibility: ₹1 Crore.

4. Type of Loan

Term Loan

Working Capital Loan

Fresh or Additional Loan taken after the scheme launch period.

How Much Interest Benefit is Available?

Interest Subvention Rate: 2% per year.

Applicable on: Important Loan Risk.

Maximum Eligible Loan Amount: Rs. 1 Crore per MSME.

Interest subvention is allowed for a specific period only (generally 1 or 2 financial years).

Duration of Scheme

The plan was first initiated for the years 2018-19 and 2019-20.

In later years, it got extended till March 31, 2021.

It is likely to be relaunched or extended in 2025 to assist MSMEs in a post-pandemic world and to further encourage “Make in India”.

Benefits of Interest Subvention Scheme for MSMEs

1. Reduced EMI Payments: Perhaps the most notable advantage is the lower interest rates, which result in much lower monthly EMIs.

2. Increased Credit Availability: Access to cheaper loans motivates many small businesses to apply for loans which they previously had no intention of utilizing.

3. Boost for Formalisation: Encourages registration of MSME entities with Udyam and GST to reap program benefits.

4. Encouragement of Cashless Transactions: Since the program aids in the strengthening of the digital banking system, MSMEs have started using non-cash payment methods more frequently.

5. Enhanced Business Profitability: Reduction in interest expenditure provides better profit margins and improves the financial health of MSMEs.

How to Apply for Interest Subvention Scheme for MSMEs?

There is no separate complicated process. Here’s what an MSME needs to do:

Step 1: Register Your Business

Udyam Registration Mandatory.

GST Registration Mandatory.

Step 2: Apply for a Loan

Visit any Scheduled Commercial Bank.

Apply for a Working Capital Loan or Term Loan.

Mention the Interest Subvention Scheme during the process.

Step 3: Bank Submission

The bank periodically uploads details of eligible MSMEs on official government portals.

Step 4: Interest Benefit Credit

The interest subsidy amount (2% of interest paid) gets directly credited to MSME’s loan account periodically.

List of Banks Covered Under the Scheme

All Scheduled Commercial Banks in India.

Includes:

Public Sector Banks (Like SBI, PNB, Bank of Baroda, etc.)

Private Sector Banks (Like HDFC, ICICI, Axis Bank etc.)

Note: Cooperative Banks and NBFCs may not be covered unless specifically notified.

Key Conditions to Remember

Loans should neither be overdue nor classified as NPAs.

MSMEs must not default on repayments.

The limit set for the subvention is ₹1 Crore.

Available on new or supplementary loans only; 2% interest subsidy applies.

MSMEs must ensure a proper repayment history.

Impact of Interest Subvention Scheme on MSMEs

Thousands of small and medium enterprises (SMEs) in India have benefitted from this scheme by significantly lowering their loan interest costs. It aided small businesses during harsh economic situations like the pandemic, global slowdown, and demonetisation.

It also motivated businesses to move from unregistered to registered status so they could gain the benefits of the scheme.

Many small and medium enterprises (SMEs) have adopted the scheme to:

Invest in new machinery

Teir-1 working capital

Improve existing technology

Recruit additional staff

Broaden export markets

Challenges MSMEs Face While Availing the Scheme

Lack of awareness about the scheme.

Non-registration under GST or Udyam.

Loan rejection due to poor credit score.

Banks sometimes delay processing interest subvention claims.

Technical issues with the bank’s internal systems.

Government’s Future Plan for MSME Interest Subvention Scheme 2025

Likely to increase the period of the scheme.

Possible increase in interest subvention rate from 2% to 3% or more for women-led MSMEs.

Expansion of coverage to NBFC loans.

Integration with Digital India portals for easy claim tracking.

Faster processing of subsidy claims.

Relaxed norms for small traders & service MSMEs.

Conclusion

The Interest Subvention Scheme for MSMEs helps small businesses struggling with high-cost loans. It not only alleviates the monetary strain but aids in the formalization of businesses, a healthy credit culture, and growing businesses.

Every MSME must ensure that they are compliant with the scheme parameters so that they can increase their competitiveness as well as improve the financial health of their enterprise.

FAQs

Q1. What is the Interest Subvention Scheme for MSMEs?

The Interest Subvention Scheme for MSMEs aids the government by granting a 2% interest reimbursement on new or incremental loans paid by registered Micro, Small and Medium Enterprises (MSME’s) to eligible banks, thus assisting them in lessening their loan burden.

Q2. Who can apply for the Interest Subvention Scheme for MSMEs?

Udyam-registered MSME with a valid GST number can venture forth to apply for the Interest Subvention Scheme as long as they have obtained, at a minimum, a new or additional loan from a Scheduled Commercial Bank.

Q3. What is the maximum loan limit eligible for interest subvention?

MSME subvention loans can go up to ₹1 crore per unit for MSME units, which is also the upper limit for subvention benefits loans per MSME unit.

Q4. How much interest relief does the MSME get under this scheme?

Under this scheme, MSMEs are allowed two percent interest relief per annum on their remaining loan balance.

Q5. Is GST registration mandatory for this scheme?

As with any government scheme in India, having a valid registration of GST is mandatory to avail the benefits of the Interest Subvention Scheme for MSMEs.

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