RBI Boosts Micro and Small Enterprises with Collateral-Free Loans

The Reserve Bank of India has introduced a policy allowing Micro and Small Enterprises (MSE) to access collateral-free loans up to Rs 20 lakh. This initiative includes loans under the Prime Minister Employment Generation Programme, with optional extensions based on track record up to Rs 25 lakh.

In a significant move to bolster the Micro and Small Enterprises (MSE) sector, the Reserve Bank of India (RBI) announced on Monday its decision to allow collateral-free loans up to Rs 20 lakh. This decision mandates banks not to demand collateral for loans given to MSE units, as stipulated in the policy.

The directive extends to those financed under the Prime Minister Employment Generation Programme, facilitated by the Khadi and Village Industries Commission (KVIC). Furthermore, banks have the latitude to extend this upper limit to Rs 25 lakh for businesses demonstrating a solid financial position and a commendable track record, according to the RBI notification.

Under this amendment, which will take effect on April 1, 2026, banks can also leverage the Credit Guarantee Scheme, when applicable. However, the RBI clarified that voluntary pledging of gold or silver by borrowers won't breach the no-collateral rule for sanctioned loans.

(With inputs from agencies.)