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What is an Interest Subvention Scheme for MSMEs?

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What is an Interest Subvention Scheme for MSMEs?

Interest Subvention Scheme

What is an Interest Subvention Scheme for MSMEs?

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The Micro, Small & Medium Enterprises sector is a significant contributor in socio-economic growth of India. This sector accounts for about 45% of the production process & almost 8% of the country’s GDP. In addition, this sector has 40% of exports from the nation. It is certain to say that it is the “Backbone of the Country.”

This sector creates jobs & improves the rural & backward region of the nation. As per the Government’s 2018-19 data, India has overall 6,08,41,245 MSMEs in the nation.

To aid all the GST registered MSMEs, RBI introduced a scheme on 2nd November 2018. The scheme was “Interest Subvention Scheme.” Government extended this scheme till FY 2020-21 due to the COVID-19 pandemic.

Let’s read all details about the scheme.

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What is an Interest Subvention Scheme?

An ISS is a project presented by the Reserve Bank of India. In the scheme, up to 2% of interest relief is provided to all the legal MSMEs. It is offered on their fresh/ working capital or additional term loan during its validity of period. The coverage of the scheme for term loan/ working capital range is limited to Rs. 100 Lakhs.


The MSME can claim relief beneath the scheme. But the loan amount should not be asserted as a Non-Performing Asset. They must check this declaration at the filing date of the claim amount.

How are MSMEs classified?

Initially, the MSME was classified under the MSME Act, 2005. A new MSMEs sorting was considered from July 2020 onwards. This sorting considers two factors. These factors are-

  • Capital investment amount.
    • It should be in plant & machinery (P&M) and equipment.
  • Annual turnover.Annual Turnover

The Government can assess the GST filings & details. This will help them to determine the companys’ turnover slab.

Purpose of the scheme

The purpose of the ISS is to-

  • Enhance production in producing & service of enterprises.
  • Offer incentives to the MSMEs who have onboard GST to support economic growth.

Benefits of the scheme

The scheme provides interest relief on the outstanding balance/ loans of the MSMEs. It is offered at 2% p.a. from the allotment date of the loan. This interest is provided in two cases that are-

  • Additional/ new term loan pay out by the qualified company.
  • Sanction of Additional/ new amount of working capital.

Eligibility for the scheme

The eligible criteria for the MSMEs under the scheme are as follows-

  • Must have a valid Udyog Aadhaar Number & GSTN. Please note that if the MSME is not able to acquire GSTN, they can use their PAN number to apply for the scheme.
  • Trading activities are enclosed beneath the project. They are provided even without UAN.
  • The MSME exporters who are taking interest subvention for pre & post shipment credit are not eligible.
  • MSMEs should not take interest subvention under any State or Central Government Yojana.

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Application Agency

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The SIDBI implements the IS Scheme for MSME. Under the agency, institutions are added to monitor & get accurate details of the scheme. The nodal office of a qualified institution has to provide half-yearly claims to the SIDBI. It should be provided in the format given under the scheme guidelines.

SIDBI stands for Small Industries Development Bank of India. It is an apex governing body for license. This body regulates MSME finance companies in the nation. It is under the Ministry of Finance, GOI.

MSMEs can apply with qualified lending institutions to obtain interest subvention. They can make an application on the term loan or outstanding working capital. The release of interest subvention will be based on the claim that is certified by the Statutory Auditors.

The application agency will release the interest subvention amount when the fund is available from the Government. Final approval for all the interest subvention matters is in the hands of the Ministry of MSME.

The fund receipt by the qualified lending institutions are used as fund certificates.


The Interest Subvention Scheme indeed has improved the MSMEs growth in India. It has widened the credit access for the MSMEs with the co-operative bank’s addition. This has led to the advancement in the Co-operative Banking Sector. These banks have a small base of customers. Most of the MSMEs opt for co-operative banks rather than commercial banks.

However, we can say that the scheme’s success depends on creating awareness among MSMEs.

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Bipin Yadav
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