Recently, the Union Cabinet approved ECLGS 5.0. In this context, which of the following best describes its purpose?

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The correct answer is Option C: It is a Credit guarantee scheme. The Union Cabinet of India approved ECLGS 5.0 to provide continued liquidity support to eligible borrowers. The Emergency Credit Line Guarantee Scheme (ECLGS) was launched in 2020 during the COVID-19 pandemic. ECLGS is a government-backed credit guarantee scheme and not a direct grant programme. The scheme provides additional working capital through guaranteed loans to eligible entities. It primarily supports MSMEs and other notified borrower categories under credit stress. The scheme uses a sovereign guarantee mechanism to reduce default risk for lenders. ECLGS promotes collateral-free or partially collateral-free lending to businesses. The scheme is implemented through banks and other eligible financial institutions. ECLGS has been extended in multiple phases, including the latest 5.0 version. Credit guarantee schemes aim to improve access to formal finance by sharing credit risk. MSMEs are a key beneficiary group in India’s credit support architecture. Government guarantees help increase lending by reducing risk perception of banks. The scheme focuses on liquidity support rather than direct fiscal transfers. Credit guarantee frameworks are used during periods of economic or financial stress. The Union Cabinet functions as the highest executive decision-making body for major policy approvals in India.

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Direct income support to MSMEs

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Equity infusion in stressed firms

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Tax rebate for small businesses

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Export subsidy scheme

Recently, the Union Cabinet approved ECLGS 5.0. In this context, which of the following best describes its purpose?

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Recently, the Union Cabinet approved ECLGS 5.0. In this context, which of the following best describes its purpose?

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