PMEGP vs CGTMSE vs MUDRA: Which Central Scheme Fits Your MSME?
PMEGP gives a subsidy, CGTMSE removes the need for collateral, and MUDRA is a loan. How the three central schemes differ, who each one is for, and how they work together.
In this article
These three schemes come up in almost every conversation about starting a small business, and they are often confused. The short version: PMEGP gives you a subsidy, CGTMSE lets you borrow without collateral, and MUDRA is a loan category. They do different jobs, and they can work together.
At a glance
| PMEGP | CGTMSE | MUDRA | |
|---|---|---|---|
| What it is | Margin-money subsidy on a bank loan | Credit guarantee — no collateral needed | Loan for micro enterprises |
| Maximum | Project cost up to ₹50 lakh (manufacturing) / ₹20 lakh (service) | Loans up to ₹10 crore | Loans up to ₹20 lakh |
| New or existing units | New units only | Both | Both |
| How you apply | PMEGP e-portal (KVIC) | Through your bank — no separate application | At a bank, NBFC or MFI, or on Udyamimitra |
PMEGP — a subsidy for new micro enterprises
The Prime Minister's Employment Generation Programme pays part of your project cost as margin money:
- General category: 15% in urban areas, 25% in rural areas.
- Special categories (SC, ST, OBC, minorities, women, ex-servicemen, transgender persons, persons with disabilities, and applicants in the North East, hill and border areas or aspirational districts): 25% urban, 35% rural.
You put in 10% of the project cost yourself (5% for special categories) and the bank lends the rest. The margin money sits as a term deposit in the loan account for three years and is adjusted once the unit is verified as working.
Watch out for: PMEGP is only for new units, one per family, and you must complete an Entrepreneurship Development Programme. Projects above ₹10 lakh (manufacturing) or ₹5 lakh (services) need the applicant to be at least Class VIII pass. Successful units can later take a second loan for upgradation — up to ₹1 crore (manufacturing) or ₹25 lakh (service) — with a 15% subsidy (20% in the North East and hill states).
CGTMSE — borrow without collateral
The Credit Guarantee Fund Trust for Micro and Small Enterprises guarantees your loan to the bank, so the bank can lend without collateral or a third-party guarantee.
- Cover on loans up to ₹10 crore per borrower (raised from ₹5 crore for guarantees approved on or after 1 April 2025).
- An annual guarantee fee, from 0.37% a year for loans up to ₹10 lakh to 1.20% at the top of the range. The bank pays it and usually passes it on — and some State policies reimburse it (Punjab's 2026 policy, for example, repays it up to ₹3 lakh a year for seven years).
- There is no separate application: ask your bank to cover the loan under CGTMSE when it sanctions it.
MUDRA — loans for micro businesses
Pradhan Mantri MUDRA Yojana loans come in four bands:
- Shishu: up to ₹50,000
- Kishore: ₹50,000 – ₹5 lakh
- Tarun: ₹5 lakh – ₹10 lakh
- Tarun Plus: ₹10 lakh – ₹20 lakh, for borrowers who have taken and repaid a Tarun loan
MUDRA loans need no collateral either; they are covered by a separate fund, the Credit Guarantee Fund for Micro Units. They are for non-farm income-generating activity, including allied activities such as dairy, poultry and bee-keeping.
Which one do you need?
- Starting a new small unit and want a subsidy? Start with PMEGP.
- Need a bigger loan and don't have property to pledge? Ask your bank for CGTMSE cover.
- Need a small loan quickly for a micro business? A MUDRA loan is usually the simplest route.
They are not either/or. A PMEGP loan can be covered by a credit guarantee so no collateral is needed, and a MUDRA borrower who outgrows ₹20 lakh moves naturally to a CGTMSE-backed loan. What you cannot do is take PMEGP for a unit that has already received another government subsidy.
Figures checked against the scheme guidelines in September 2026. Not sure which fits? Check your eligibility across central and state schemes in two minutes.
Frequently asked questions
Can an existing business get PMEGP?
No. PMEGP is for new units only, one per family, and units that have already received a government subsidy are not eligible — except for the second loan for upgradation of a successful PMEGP unit.
Is there a separate application for CGTMSE?
No. You ask your bank to cover the loan under CGTMSE when it sanctions it. The bank registers the guarantee on the CGTMSE portal and pays the annual guarantee fee, which it usually passes on to you.
What is MUDRA Tarun Plus?
A fourth MUDRA band for loans between ₹10 lakh and ₹20 lakh, added in the Union Budget 2024-25, for borrowers who have taken and repaid a Tarun loan.
Is PMEGP still open in 2026-27?
PMEGP was approved for 2021-22 to 2025-26. When we checked in September 2026, a continuation for the 16th Finance Commission period had not been separately notified — confirm on the PMEGP e-portal before applying.
Sources
This article is general information for Indian MSMEs, not advice on your specific case. Scheme terms, tax rates and due dates change; the sources above were checked when the article was written or last updated. Speak to a professional before acting on it.
Not sure which schemes fit your business?
Two minutes, no sign-up. See your matches across central and state schemes.