Credit Guarantee Fund Trust for Micro and Small Enterprises

Ashish M. Shaji

20 Jun, 2020

What is Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)?

It is one of the government-sponsored schemes for Micro, Small and Medium Enterprises (MSMEs). It was launched on 30^th August 2000 by the Ministry of Micro, Small and Medium Enterprises under the Government of India.

The primary objective behind the formation of this trust is to provide financial assistance to MSMEs without any third-party guarantee or collateral. This scheme assures the lenders that in case of default by them a guarantee cover shall be provided by the trust in the ratio of 50, 75, 80, 85 percent of the amount given. 

What are the objectives of this fund?

This fund has the following objectives:

• To check the financial viability of the project of these companies; and
• To provide term loans and composite credit schemes.

Under the CGTMSE scheme, a loan of up to 200 lakh rupees can be provided to MSMEs. A unique favor is given to the women entrepreneurs who are eligible for this scheme. Loans can also be availed by borrowers who live in the North Eastern States of India like Sikkim.

What is the meaning of a Credit Guarantee?

Credit guarantee means a situation where the loan to an applicant is backed by a party without any need of external collateral or third-party guarantee. The loan sanctioned by the member lending institution is supported by the scheme that gives guarantee cover for the large part of a loan amount.

What is the fee charged by the Credit Guarantee Fund Trust?

The fee charged by the CGTMSE is a percentage of 1% per annum of the amount that is sanctioned-

• 0.75% for credit of up to rupees 5 lakh;
• 0.85% for credit above 5 lakh rupees but up to 100 lakh rupees.

The credit guarantee that can be availed under this scheme is 75% or 80% of the amount given to a maximum cap of 62.5 lakh/65 lakh rupees for a credit facility of up to 50 lakh rupees. The percentage guarantee for micro-enterprises is 85% for a sum of up to 5 lakh rupees.

The percentage of guarantee is 50% of the amount sanctioned for a credit of above 50 lakh rupees with a maximum cap of 100 lakhs rupees. The tenure of the guarantee is a block of five years.

Extent of the Cover given by Credit Guarantee Fund Trust

The extent of cover is up to 80% for the following:

• Micro and Small Enterprises that are owned and operated by woman entrepreneurs.
• All credits or loans provided to the North Eastern States of India including the state of Sikkim.

Where there is a default, the trust shall settle claims up to 75% or 80% of the amount not repaid up to the limit cap of 50 lakhs rupees. Where the amount is above 50 lakh rupees and up to 200 lakh rupees the guarantee cover shall be reduced to 50%.

Which enterprises can avail the fund of Credit Guarantee Fund Trust for Micro and Small Enterprises?

The following enterprises are eligible for this scheme:

• New and existing Micro, Small and Medium Enterprises who are engaged in the process of-
  • Manufacturing activity
  • Service activity excluding-
  • Retail trade;
  • Educational institutions;
  • Self-help groups; and
  • Training Institutions.

It is also available now for certain NBFCs (Non-Banking Financial Companies).

Which banks are associated with the Credit Guarantee Fund Trust scheme?

The following banks can work as eligible lenders under this scheme-

• Scheduled Commercial banks that may be Public sector or private sector or a foreign bank.
• NABARD has put some regional rural banks under the Sustainable Viable category. Such banks can act as an Eligible banker.
• A total of 133 eligible lending institutions registered as MLI’s of the trust which comprises of the following:
  • 26 Public Sector banks;
  • 21 Private Sector banks;
  • 73 regional rural banks;
  • 4 foreign banks;
  • Delhi financial corporation;
  • Kerala financial corporation;
  • Jammu and Kashmir Development Finance Corporation Limited;
  • Export-import bank of India;
  • The Tamil Nadu Industrial Investment Corporation Limited;
  • National Small Industries Corporation;
  • North Eastern Development Finance Corporation; and
  • Small Industries Development Bank of India.

What is the procedure to opt for the CGTMSE scheme?

The procedure to opt for this is as follows:

• The primary and the foremost step to opt for this scheme is by preparing a proper business plan containing all the financial details and otherwise. The business plan must be such that it must explain the viability of the project.
• Once the business plan is ready, a vital decision must be taken regarding which lender bank is to be approached. When the decision is made, the application and the business plan should be submitted to the bank.
• Next, the bank will check and verify the details entered in the application and also the model of the submitted project. 
• Once the application is verified, the bank shall send the application to the Credit Guarantee Fund Trust for Micro and Small Enterprises where the application will be checked once again. If it is approved, then the fund shall instruct the bank to release the funds for the business. When the approval is granted, the business must pay the borrowers the CGTMSE guarantee and service fee. 

Conclusion

Also, read: MSME Ministry launched National Level Awareness Program 2020