New Delhi, Apr 14 (KNN) The Centre is likely to launch a low-cost credit card scheme for micro enterprises later this month, aimed at reducing borrowing costs and improving access to working capital. The initiative is expected to target small businesses registered on the Udyam Portal.
Under the proposed scheme, unsecured credit cards with limits of up to Rs 5 lakh will be offered to eligible micro units.
The new cards are expected to significantly reduce borrowing costs compared to conventional credit cards, which typically carry annualised interest rates of 36–42 per cent.
The proposed scheme is likely to cap interest rates at around 18 per cent, with effective costs potentially falling further due to a 30-day interest-free period and flexible repayment options, The Financial Express reported, citing sources.
Users will also have the option to convert outstanding balances into equated monthly instalments (EMIs) at reduced interest rates of around 10–12 per cent.
Government Support to Boost Adoption
To encourage banks to participate, the government plans to provide incentives by covering part of the card issuance and processing costs. A one-time assistance of up to Rs 500 per card may be extended for the first 10 lakh cards issued.
The scheme is expected to be backed by credit guarantee mechanisms such as the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) and the Credit Guarantee Fund for Micro Units (CGFMU), reducing default risks for lenders and enabling lower interest rates.
Boost to MSME Credit Flow
Officials estimate that the scheme could unlock between Rs 25,000 crore and Rs 50,000 crore in additional credit annually for the micro, small and medium enterprise (MSME) sector, which plays a critical role in employment and economic activity.
The initiative is particularly aimed at addressing liquidity constraints faced by micro units, many of which rely on high-cost borrowing due to delayed payments fr0m larger buyers. Payment cycles often extend beyond 90 days, disrupting cash flows and operational stability.
Targeting Small Borrowers
The scheme is expected to benefit businesses already availing loans under the Pradhan Mantri Mudra Yojana (PMMY), which typically serve borrowers in the Rs 15–20 lakh range. These enterprises will be able to access additional short-term credit of up to Rs 5 lakh through the card.
In the initial phase, banks are likely to offer the product to existing customers with established credit histories, before expanding coverage more broadly.
(KNN Bureau)
