Emergency Credit Line Guarantee Scheme

Ashish M. Shaji

10 Aug, 2020

The finance ministry recently decided to extend the Emergency Credit Line Guarantee Scheme to individuals. It has also allowed loans to larger MSMEs (Micro, Small and Medium Enterprises) and professionals like doctors, lawyers, etc. for business purposes.  

What is the Emergency Credit Line Guarantee Scheme (ECLGS)?

The ECLGS was launched in May 2020 as part of the Atmanirbhar package by the Indian Government to tackle the ongoing crisis of Covid-19. The ECLGS provide for the Guaranteed Emergency Credit Line facility. 

It is a loan for which a 100% guarantee is given by the National Credit Guarantee Trustee Company. It provides the guarantee to Member Lending Institutions like banks, NBFCs (Non-Banking Financial Companies), and financial institutions.

The loans are extended in the form of additional working capital term loan facility in case of banks and additional term loan facility for NBFCs to eligible MSMEs, business enterprises, and interested Pradhan Mantri Mudra Yojana borrowers.

What is the objective of this scheme?

The scheme was rolled out as a response to the crisis situation caused by Covid-19 across the country. The primary objective of this scheme is to provide relief to the MSME sector by stimulating Member Lending Institutions to provide additional credit of up to 3 lakh crore rupees at a low cost. It will allow MSMEs to meet their operational liabilities and restart their businesses.

Government to extend the Emergency Credit Line Guarantee Scheme to individuals

The ECLGS has gone through a lot of changes. One among them is that the finance ministry decided to provide this scheme to individuals now. Individuals can avail of this scheme if they already have loans for business purposes and provided that they fulfill the eligibility criteria to avail of the scheme.

Finance Ministry Nirmala Sitharaman said that the extension of the scheme to include individual loans for the purpose of working capital and larger MSMEs might boost credit offtake by 1 trillion rupees within the overall ceiling of 3 trillion rupees for the scheme.

What are the eligibility criteria to avail of this scheme?

The following eligibility criteria must be fulfilled:

• All enterprises with a turnover of upto 250 crore rupees with outstanding loans of up to 50 crore rupees as on 29^th Feb 2020 can avail of this scheme. 
• Credit under Guaranteed Emergency Credit Line facility is provided up to 20% of the borrower’s total outstanding credit up to 25 crore rupees.
• Individual beneficiaries, including professionals like doctors, lawyers and chartered accountants, and self-employed people like vendors or taxi drivers.

What are the key points of this scheme and key revisions made under the scheme?

The key highlights of the Emergency Credit Line Guarantee Scheme and the changes made therein are mentioned below.

• ECLGS provides for GECL (Guaranteed Emergency Credit Line) facility, and credit under GECL is provided up to 20% of the borrowers’ total outstanding credit up to 25 crore rupees.
• The scheme provides for loans to enterprises with a turnover of 250 crore rupees with outstanding loans of up to 50 crore rupees as on 29^th Feb 2020. This limit was earlier 100 crore rupees and 25 crores, respectively.
• The expansion of the limits has increased the maximum amount of loans to be availed under this scheme to 10 crore rupees from 5 crore rupees.
• The entire funding provided under the GECL facility will be provided with a credit guarantee of 100% by the National Credit Guarantee Trustee Company to member lending institutions.
• The tenor of the loan under this scheme will be four years from the date of disbursement. A moratorium period of 1 year on the principal amount is given.
• Interest rates under the scheme of banks and financial institutions have been capped at 9.25% per annum, and Non-Banking Financial Companies (NBFCs) can lend at a maximum of 14 % per annum.
• The government has expanded the scheme to allow professionals and larger MSMEs to avail of the scheme. It has also extended the scheme to individuals as well.

Conclusion