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The Ministry of Micro, Small & Medium Enterprises (MSME) launched the Credit Guarantee Scheme (CGS) in order to improve the credit delivery system in the country and streamline the flow of credit to the Micro and Small Enterprise (MSE) sector.
To make this scheme operational, the Indian government and SIDBI created the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).
There are two Schemes under CGTMSE, as shown below:
CGTMSE created a scheme for the provision of guarantees for credit facilities extended by lenders to MSE borrowers. The scheme was named Credit Guarantee Fund Scheme for Small Industries (CGFSI). The key features of the scheme are as follows:
Annual Guarantee Fee (AGF)
AGF is charged on the guaranteed amount for the initial year, and on the amount outstanding for the rest of the tenure. The AGF structure is as follows:
Category | Maximum extent of Guarantee where credit facility is | ||
Up to Rs.5 lakh | Above Rs.5 lakh and up to Rs.50 lakh | Above Rs.50 lakh and up to Rs.2 crore | |
Micro Enterprises | 85% of the amount in default subject to a maximum of Rs.4.25 lakh | 75% of the amount in default subject to a maximum of Rs.37.5 lakh | 75% of the amount in default subject to a maximum of Rs.1.50 crore |
Women entrepreneurs or units located in North East Region including Sikkim (other than credit facility up to Rs.5 lakh to micro enterprises) | 80% of the amount in default subject to a maximum of Rs.40 lakh | ||
All other section of borrowers | 75% of the amount in default subject to a maximum of Rs.37.5 lakh | ||
Activity | From Rs.10 lakh and up to Rs.1 crore | ||
MSE Retail Trade | 50% of the amount in default subject to a maximum of Rs.50 lakh |
The AGF is usually paid to the Trust by the institution receiving the guarantee within 30 days of loan disbursal. This payment can be made through NEFT/RTGS.
The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) has created a scheme for the provision of guarantees for credit facilities extended by NBFCs to MSE borrowers. The key features of this scheme are as follows:
Guarantee Fee
Listed below are some of the credit forms that would not be eligible for the guarantee cover under the CGTMSE schemes:
Ans: Existing and new micro and small enterprises that are involved in service/manufacturing activities are eligible for guarantee cover under the CGTMSE schemes. It should be noted that enterprises engaged in retail trade, educational institutions, and SHGs are not eligible under the schemes.
Ans: Yes, loans offered to small water and road transport operators are eligible for guarantee coverage provided by CGTMSE.
Ans: It may be necessary for a borrower to have an IT-PAN number before availing a loan from a lender. Section 139A(5) read with section 272(C) of the Income Tax Act 1961 indicates that IT-PAN is needed on returns, appeals, and challans.
However, for loans that go up to Rs.10 lakh, CGTMSE does not make it mandatory to furnish the IT-PAN for guarantee cover. For all loans above Rs.10 lakh, the IT-PAN is needed.
It is a good practice to indicate the IT-PAN on all applications, irrespective of the amount of loan taken.
Ans: No, this is not mandatory. The loan can be taken from more than one lender jointly or separately up to a maximum amount of Rs.100 lakh per borrower.
Ans: CGTMSE provides guarantee cover up to a maximum of 75% of the claim amount within 30 days of the claim. The remaining 25% of the claim amount will be paid after the recovery proceedings are completed by the lending institution.
Ans: No, this is not possible.
Ans: Primary security is the asset that is created out of the loan taken by the borrower. This is directly associated with the business of the borrower.Collateral security is an additional security that is provided for this loan. This can include the mortgage of a house, hypothecation of jewellery, etc.
Ans: The guarantee cover will start being effective from the date on which the guarantee fee is credited to the account of the Trust.
Ans: CGTMSE provides guarantee to the MLIs registered with it. Hence, entrepreneurs in the MSE sector will be required to approach the lenders (that are already registered with the Trust as MLIs) for credit needs. The MLIs, in turn, will get the credit guarantee based on their requirements. The list of MLIs of the Trust can be found at the CGTMSE website.
Ans: No, a single guarantee cover is not allowed for all the outstanding MSE loans. The MLIs should individually apply for guarantee cover for each borrower separately.
Ans: If the new management satisfies the norms of eligibility, continues to perform the existing activities of the borrower, or performs new activities that are eligible under the scheme, then the guarantee cover will continue. However, if the new management does not satisfy any of these norms, the guarantee cover will be terminated from the date of transfer of management.
Ans: The unit should have been an eligible borrower under the scheme and was later found to be sick due to unavoidable factors. In this case, the rehabilitation credit offered by the lender can also be covered under the scheme, as long as the overall credit amount is within Rs.100 lakh.
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