The Reserve Bank of India (RBI) has doubled the limit on collateral-free loans for small businesses to Rs 20 lakh from Rs 10 lakh earlier, a measure that would boost credit to the MSME sector.

The revised norms will apply to loans sanctioned or renewed from 1 April 2026.

“With a view to facilitate improved access to formal credit, support entrepreneurial activity, and strengthen last-mile credit delivery for micro and small enterprises (MSEs) with limited collateral, it has been decided to enhance the limit of collateral-free loans to MSEs from Rs 10 lakh to Rs 20 lakh,” the RBI said.

The last revision in the collateral-free loan limit was made in in 2010, when it was doubled to Rs 10 lakh from Rs 5 lakh.

“MSMEs are the growth engines of the economy. They are a very important component, especially from the point of view of generating employment,” RBI Governor Sanjay Malhotra said.

Earlier, in the Union Budget, Finance Minister Nirmala Sitharaman announced a fresh allocation of Rs 10,000 crore to the SME (small and medium enterprises) growth fund to nurture future “Champion SMEs.” 

“The increase in the collateral-free loan limit for MSMEs to Rs 20 lakh is particularly meaningful for micro-entrepreneurs and small businesses, as it broadens access to affordable credit and enables income-generating opportunities at the grassroots level. Alongside measures aimed at deepening financial inclusion and improving liquidity transmission, these steps will encourage responsible borrowing, support consumption, and strengthen the resilience of India’s retail and MSME credit ecosystem,” said Home Credit India CEO Vivek Singh.

The MSME sector provides employment to over 25.18 crore people.