New Delhi, July 21 (KNN) In a bid to ease working capital constraints faced by micro enterprises, the government is preparing a new scheme that will enable banks to issue credit cards with a limit of up to Rs 5 lakh.
The cards, to be extended exclusively to units registered on the Udyam portal, will come with credit guarantee coverage—a first for such a financial product—aimed at reducing borrowing costs and risk for lenders.
This initiative follows several MSME-focused measures announced in the Union Budget 2025–26, which include enhanced credit guarantee cover, relaxed classification thresholds, and targeted support for first-time entrepreneurs from underrepresented backgrounds.
Designed to address the immediate cash flow challenges of small firms, especially those affected by delayed payments from larger clients, the scheme will target an initial rollout of one million credit cards in its first year.
Many micro enterprises face payment cycles stretching up to 90 days, making it difficult to manage operational costs and payroll in a timely manner.
Currently, credit cards carry an interest-free period of 30–45 days, post which interest rates typically range between 25 percent and 30 percent per annum.
Some banks charge even higher rates. The proposed scheme will work to mitigate this financial strain by leveraging credit guarantees to bring down effective interest rates for cardholders after the grace period.
While no direct interest subsidy will be offered, the government is considering convergence with 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).
“The goal is to keep interest rates manageable to avoid debt traps for micro businesses,” said an official involved in the policy discussions, according to The Financial Express.
The scheme is expected to be ready by September, following detailed consultations with banks to create a workable repayment and pricing structure.
Officials are mindful that most micro enterprises lack financial literacy and may not be fully familiar with credit card terms and liabilities.
To that end, the government is placing emphasis on customer education and safeguards in the scheme’s design to prevent financial distress.
The government is also rolling out productivity-linked schemes in sectors such as leather, footwear, and toys to boost competitiveness.
(KNN Bureau)
