2% Interest Subvention Scheme for MSMEs

Prime Minister, Narendra Modi announced the 2% Interest Subvention Scheme on 2nd of November 2018. The 2% Interest subvention scheme has been implemented for fiscal years 2018-19 and 2019-20. In addition, total funds allocated under the scheme amount to Rs 975 crores.

The government plans to improve the MSMEs sectors by enhancing five major segments that affect the growth of the enterprises:

Subsequently, government initiated twelve schemes to address the five issues.


The scheme endeavours to attain the following goals

  1. To assist in both manufacturing and services businesses
  2. Thereby, it aims to improve the quality production
  3. To give MSMES’s incentives to encourage them to board on GST platform
  4. Creating and increasing employment opportunities.

MSMEs entrepreneurs that possess the following can enroll themselves as a beneficiary under the scheme

  1. A valid Udyog Aadhar Number (UAN)
  2. A valid GSTN number
Salient Features of the Scheme
  1. All the MSMEs registered under GST will be provided 2% interest subsidy per annum.
  2. The loans under the scheme are for new, incremental and working capitals for the year 2019-20.
  3. Maximum financial assistance provided up to Rs 100 lakh under Interest subvention scheme by Government of India.
  4. Pre and post-shipment credit by MSME exporters not covered under the scheme.
  5. Entrepreneurs availing benefits under other schemes are not eligible.
Interest rate of Loans to MSMEs

The interest rates set under this scheme is by following the code of ethics and fair practices code. Further, the debtors should not declare as NPA as no loans shall be provided to NPA accounts.

Procedure to Claim

Interest Subvention claim should be made through the Small Interest Development Bank of India (SIDBI). The fee allotted for this is 0.25% per annum.

List of forms and procedure for filing claims includes:

  1. For half a yearly claim, fill Annex-I. Nodal office of the financial or lending institution must submit their half yearly interest subvention claims to SIDBI.
  2. In Annex-II fill branch wise details. In addition, a soft copy of which must also be submitted in excel.
  3. Statutory auditors of financial or lending institutions must duly certify the interest subvention claims. The statement certified should include details of total amount disbursed, interest and 2% subvention interest claimed under the scheme. Subvention interest claimed should all match under Annexure I, II and III.
  4. Finally, Annex-III is provided to in-charge branches by MSME to compile the data. That apart, the should submit half-yearly claims to the chief general Manager, Institutional financial vertical and SIDBI.
  5. Once the verification by Ministry of Micro, Small and Medium Enterprises is complete, the funds can be released.

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Mandatory Documents
  1. The filled forms of Annex-I, Annex-II, and Annex-III
  2. The statutory officer must provide a certificate that verifies the following documents:
    • Amount
    • New or Incremental loan
    • Interest
    • Amount
    • Pan card
    • Udyog Aadhar Card
  3. Utility and Property tax bill
  4. Trade license and ownership entailing documents
  5. Partnership deed or MOA
  6. Statement of the amount of expenditure
  7. IT returns of three years

SIDBI is designated as the Nodal Agency. Additionally, strict monitoring necessary to issue accurate data by governing board (GB). In case of inaccurate data submitted by the financial or lending institution, SIDBI cannot be held responsible. SIDBI releases the claim depending on the availability of funds from the government. The final authority for all matters related to interest subvention scheme is the Ministry of MSME. Note that the financial or lending institution must issue utilization certificate of fund once they receive funds from SIDBI.

Amendments to 2% Interest Subvention Scheme for MSMEs

Nitin Gadkari, the Minister of MSMEs, Road Transport, and Highways agreed to several amendments made in the scheme. The changes set to improve the functionality of 2% Interest Subvention Scheme.

Alignment in the Scheme
  1. All the settlements should complete before June 30, 2020 regarding certificate and submission of Legal examiner’s certificate.
  2. The given claims accepted in the manifold for the decided half year by the institutions.
  3. Companies without GST can submit Income tax Permanent account number.
  4. Previously the submission of half-yearly claim deadline was 31st March 2019. It’s extended to 31st December 2019.
  5. UAN is no longer mandatory for trading activities.
  6. On the submission of necessary documents, 50% of the claim amount is released to institutions.

In conclusion, these improvisations ease the procedure and in return aid to a faster elevation of the MSMEs sector. As a result, overall economic growth will flourish positively.

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