Interest Subsidy Eligibility Certificate (ISEC) Scheme(ISEC)

Overview

About ISEC

The Interest Subsidy Eligibility Certificate is a letter the Khadi and Village Industries Commission issues to a khadi institution so that a bank will lend to it at a cheap rate, and the applicant is the institution itself: a registered society, a co-operative society, a public trust, or a State Khadi and Village Industries Board. No individual applies for it. Nothing under it is paid to a student, a borrower's child, or a household. It is a credit scheme for the khadi sector that happens to carry the words "interest subsidy" in its name, which is why it collects search traffic meant for education loans.

Settle one thing before reading further down this page. The official scheme record reproduced below carries two blocks that belong to a different scheme: the published question-and-answer set and the list of required documents both describe an education loan taken out by a student. Neither block describes ISEC, and acting on either one will send a reader to the wrong counter. What governs ISEC is the KVIC guidelines circular, and every section here is written from that circular and from the ministry's own answers in Parliament.

KVIC's own description of the scheme is a funding one, not a welfare one. The Government of India introduced it in May, 1977 to help khadi and polyvastra producing institutions mobilise capital funds from banking institutions, and under it an implementing agency borrows against the certificate KVIC has issued while paying only 4 percent interest, with the gap between the bank's actual charge and that 4 percent borne by KVIC as interest subsidy.

Nothing is released until an institution has already borrowed from a bank, and what is released is measured in interest rather than handed over as money the institution can spend. Counted that way, the scheme is small: by 28 March 2025 KVIC reported a grant amount of Rs 40 crore to 1153 khadi institutions under the ISEC programme for the financial year 2024-25, stated alongside that year's Modified Market Development Assistance totals.

It is not a standalone budget line either. ISEC is one component of Khadi Vikas Yojana, itself one of three components of the umbrella central sector Khadi and Gramodyog Vikas Yojana, where the implementing agencies are listed as the Central Government, KVIC and the lending banks together.

Who runs it

Provider

At a glance

Key details

Calendar

Important dates

The scheme record publishes no opening or closing date, and correctly so: ISEC has run continuously since 1977 with no application season. The calendar that binds an institution is the financial year, because the certificate is issued for a year and the requirement has to be on the table before that year's budget discussions.

The disbursement rhythm follows the same year end. KVIC's FY 2024-25 ISEC figure was announced on 28 March 2025, days before the year closed, at the event where the commission also released its MMDA totals. An institution that wants its claim settled inside a financial year works backwards from that.

Who can apply

Eligibility criteria

Eligibility is decided by what the borrowing body legally is, not by anyone's income or category. The scheme guidelines KVIC circulated in December 2022 carry the original borrower definition: a State Khadi and Village Industries Board, a registered institution meaning one registered under the Societies Registration Act 1860 or any other law in force in a state, a co-operative society registered under the Co-operative Societies Act 1912 or a state co-operative law, and a trust created for public purposes of a charitable or religious nature. Loans raised by KVIC itself, and by a State Board for onward disbursement to institutions, societies or individual artisans, sit inside the same scheme.

Registration with KVIC or a State Board is the gateway to that list. The Ministry of MSME built the Khadi Institutions Registration and Certification Seva so entrepreneurs and NGOs could obtain the "Khadi" Certificate and "Khadi Mark" from KVIC, and its July 2019 note names ISEC among the schemes a registered institution holding that certificate can then draw on.

One more condition sits above the legal form. The subsidy is admissible only on funds raised for the development of khadi and village industries as specified in the schedule of village industries in the KVIC Act, together with any industry notified under Section 3 of that Act. Borrowed money that does not serve a khadi programme is outside the scheme even for an eligible institution.

Who cannot apply

Exclusions

The sharpest exclusion is historical and still binding. When the Rural Employment Generation Programme was carved out for the village industries sector with effect from 1 April 1995, ISEC narrowed to mainly khadi and polyvastra producing institutions, and existing village industry institutions were allowed to keep using it only up to the level as on 31 March 1995, or actuals, whichever is less. New village industry units were sent to REGP, which was subsumed into the Prime Minister's Employment Generation Programme from 2008-09. A village industries unit set up after that boundary has no ISEC route.

Two administrative exclusions decide the rest. Only institutions whose names appear in the Zonal Deputy CEO's approval for the year qualify for a certificate at all, so an institution that missed the budget stage is out for that year regardless of how good its case is. And the Commission's liability runs only for the period for which the bank sanctioned the loan; it does not pay interest subsidy for a defaulted period, a limitation printed on the face of the certificate itself.

Continuation

Renewal conditions

The certificate carries a year on it. Form 1(B), the version an institution takes to its bank, ends with the line "This is issued for the year", so the document is tied to a single financial year and the institution comes back through the same approval chain for the next one.

That chain restarts at the budget stage. An institution aided by a State Board indicates separately, industry-wise, purpose-wise and institution-wise, the funds it expects from banks; a directly aided institution or co-operative society sends the same information to the concerned State or Divisional Director of KVIC before the annual budget discussions are held. What comes out of those discussions is the finalised programme for institutional financing, and only then does a fresh certificate get issued against the approved limits.

What you get

Award & benefits

What the institution gains is a rate, not a grant it can spend. The quantum of subsidy is limited to the difference between the actual rate of interest charged by the financing institution and the 4 percent to be borne by the borrower, and if the rate charged by KVIC is ever modified, the subsidy is recalculated against that modified rate instead.

The purpose the money may serve is wider than the scheme's short descriptions suggest. Answering the Lok Sabha in December 2024, the Ministry of MSME said credit at the concessional rate of 4 percent per annum is given for capital expenditure as well as for working capital as per the requirement of khadi institutions, and the ministry repeated the same coverage, worded as capital investment and working capital, in a February 2026 reply that also states the certificate is issued to eligible khadi institutions on the basis of their production levels and estimated funding requirements.

There is no rupee ceiling published for the scheme. The ceiling is whatever borrowing limit the Zonal Deputy CEO approved for that institution, for that purpose, in that year, and the certificate names it. The lenders it can be presented to are broad: all scheduled and non-scheduled banks including the State Bank of India and its subsidiaries, nationalised banks and co-operative banks, along with State Financial Corporations, the Industrial Development Bank of India and other institutions created or registered under an Act of Parliament or a state legislature.

• Interest Subsidy: Loans available at a concessional interest rate of 4% per annum for working capital. - Subsidy Support: The difference between the actual bank interest rate and 4% is paid by the Central Government through the Khadi and Village Industries Commission (KVIC). - Funding Support: Helps bridge gap between required funds and budgetary allocation. - Sector Coverage: Applicable for khadi and polyvastra sector only.

What to prepare

Documents required

The paperwork that decides an ISEC case is a set of numbered forms moving between four parties, and the institution holds only one of them. Form 1(A) is the certificate issued to a State Khadi and Village Industries Board, listing the institutions whose budgets the Commission approved and the borrowing limits sanctioned for each. Form 1(B) is the operative certificate: it names the borrower, the address, the industry, the purpose and the amount, and it is what the institution puts in front of its bank.

The claim side runs on three more. The bank uses Form No. 2 to advise KVIC or the State Board that it has sanctioned and disbursed the loan, with the rate it carries and how it is repayable. Form No. 3 is the interest subsidy claims register, kept industry-wise by the State Board, by the State and Divisional Directors and by KVIC in Mumbai. Form No. 4 is the bank's own claim, which must quote the certificate number and date and the bank's payment advice, enclose a statement of accounts, and certify that the amount claimed has not already been received from KVIC.

Signatures matter as much as the forms. A certificate issued by the Commission is signed by its Chief Executive Officer or by an officer he has delegated to, and one issued by a State Board by its CEO, Secretary, Executive Officer or Administrator. Claims reaching a KVIC state directorate must be countersigned by an officer not below the rank of State or Divisional Director.

Step by step

How to apply

There is no form an institution fills on a portal and submits cold, and no window that opens on a date. Application means getting into the year's approved financing programme, and it runs in this order.

1. Declare the requirement at the budget stage. Board-aided institutions route it through the State Board; directly aided institutions and co-operative societies send it to their State or Divisional Director before budget discussions.
2. Clear the approval chain. Proposals go up to the Zonal Deputy CEO, and to the concerned industry or programme directors who place them before the Standing Finance Committee for ratification. Only names carried in that approval qualify for issuance.
3. Collect the certificate. The Bank Finance Cell in the KVIC field office issues it in Format 1(B). For institutions working under a State Board, the State or Divisional Director issues within the limits already indicated in the Board's own certificate.
4. Negotiate with the bank. The institution takes the certificate to its bankers for the financial accommodation it needs. The final decision to accept or reject the loan application rests with the bank, though a bank that rejects one may tell the Commission or the Board why.
5. Report back. Once limits are sanctioned and drawn, the institution informs the Commission of the amount, the rate, the tenure and the drawal position, and the bank separately advises the Commission or the Board of the sanction and disbursement.

Tracking a claim is where the online route matters. KVIC built the Khadi Institutions e-Portal to run MMDA and ISEC, and the Ministry told the Lok Sabha in December 2024 that KVIC and KVIB registered khadi producing institutions submit their MMDA and ISEC claim through it to the respective field offices of KVIC. KVIC had earlier told the Rajya Sabha it developed an online portal for disbursement of the interest subsidy precisely to avoid delay and make claiming the interest subsidy easier. Read the two official descriptions of where that disbursement lands and they do not match: the 2021 reply says directly into the bank account of khadi institutions, while the 2022 guidelines say KVIC shall disburse through the online portal directly to the concerned financed banks. An institution chasing a payment should ask its state office which of the two applies to its own claim year.

Offline, the trail is the claims register. A bank's Form No. 4 goes to the KVIC State Director, who scrutinises it and forwards it to the Bank Finance Cell for payment; the Directorate of Accounts in Central Office then arranges payment and advises the State Director or the State Board, who notes it in that register. The state office therefore knows the status of a claim before the institution does, and is the place to ask.

How winners are picked

Selection process

No institution is ranked against another and no merit list is drawn up. Two filters decide a case, and both of them look only at the applicant in front of them. The first is KVIC's own: the certificate is issued to eligible khadi institutions based on their production levels and estimated funding requirements, which turns the size of the certificate into a function of how much khadi the institution actually produced. The second is the bank's ordinary credit judgment, which the guidelines leave untouched.

That second filter is why KVIC spends effort on bankers rather than on applicants. Its state and divisional offices place proposals in the State Level Bankers' Committee to get banks to extend finance to eligible khadi institutions, and the Commission has separately instructed all its field offices to press for ISEC to be a regular agenda item in SLBC meetings, having asked bank chairpersons and managing directors to issue matching directions down their own chain.

Fine print

Terms & conditions

Four conditions on the certificate do most of the work in a dispute. The Commission carries no liability of any kind for the principal, nor for the 4 percent the borrower is meant to bear; its liability is restricted to paying the interest subsidy as per the scheme. The Commission agrees to surrender its first charge over the institution's movable and immovable assets in favour of the bank, which is what makes the lending possible at all. Subsidy is payable only for the period the bank sanctioned the loan for, and not for a defaulted period. And individual subsidy payments need no separate sanction from the Standing Finance Committee, being routine and committed in character, so long as they fall inside the year's budget allocation for interest subsidy.

Get help

Contact

The addresses that matter are institutional, not a helpline. Form No. 2 in the guidelines is addressed by the bank to the state office, State Board or institution, with a copy endorsed to the Director (Bank Finance), Khadi and Village Industries Commission, Mumbai 400 056, and it is that Bank Finance wing which the scrutinised claims reach for payment. Day to day, a directly aided institution deals with the State or Divisional Director of KVIC for its state, and a board-aided institution with its State Khadi and Village Industries Board, whose CEO, Secretary, Executive Officer or Administrator signs both its certificates and its claim countersignatures.

Source

Official links

Frequently asked questions

From the official scheme FAQ (myScheme)

Read this

Disclaimer

Disclaimer

Scheme details are compiled from myScheme, the Government of India’s official scheme-discovery platform, and are reproduced without alteration. Amounts, deadlines and eligibility change between cycles, so always confirm on the official links above before applying. Expertie does not process applications or charge fees.

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