India's lending to micro, small and medium enterprises slowed to 13 percent year on year in April 2026, from 20 percent in December 2025, reflecting weaker demand and global headwinds, while ECLGS 5.0, launched by the government in May 2026, was flagged as a measure to cushion the impact on credit supply.
The report said lenders faced a cooling in MSME loan growth as external factors weighed on export demand and business sentiment. The Emergency Credit Line Guarantee Scheme 5.0, approved by the Union Cabinet on 5 May 2026 with an outlay of ₹18,100 crore, offers a 100 percent guarantee on eligible loans to MSMEs and is designed to unlock about ₹2.55 trillion of additional credit. By 1 June, banks had sanctioned more than ₹35,000 crore (₹350 billion) of loans under the scheme, according to the government.
The external environment, which the report described as global uncertainty linked to the West Asia conflict, included weaker export demand, which had implications for working capital cycles and import-dependent input costs for smaller firms.
ECLGS 5.0 AND POLICY IMPLICATIONS
The ECLGS series had been used previously to support liquidity for MSMEs during periods of stress, and the 5.0 iteration was approved in May 2026 to support MSMEs, other businesses and airlines facing liquidity strain from the West Asia crisis. By 1 June the scheme had drawn more than 2.62 lakh applications, about 75 percent of them from MSMEs.
Sources: The Hindu Business Line Banking
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