Indians are known for their entrepreneurial nature, with the country being home to millions of entrepreneurs. While one might think that venturing into the world of business is easy, the fact is that there is a lot which goes into it, with money being the most important factor. One might have the idea, zeal, passion and motivation, but without money/finance they have nowhere to go. The government, on its part has initiated a number of schemes designed to offer financial aid to entrepreneurs, setting them on the path to success.
Micro and Small industries are the backbone of the Indian economy, offering employment to millions. A number of these enterprises face issues when it comes to availing funds, which is why the government set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). The Indian Government tied up with SIDBI to set up this Credit Guarantee Scheme which aims to provide credit to deserving individuals/entities based on project viability, ensuring they have access to working capital and/or term loans from a single lending entity.
A brainchild of the Ministry of Micro, Small and Medium Enterprises, the CGTMSE Scheme is a unique offering which aims to bridge the gap between a business idea and its execution, offering financial support to entrepreneurs. Under the scheme, eligible members can get credit facilities from banks to finance medium and small enterprises. Loans upto a maximum of Rs 1 crore can be availed, with the differentiating factor being the Credit Guarantee provided by the government.
This Credit Guarantee offers security to entrepreneurs in the event of their business failing. A maximum cover equivalent to 85% of the loan amount is available under the scheme. In cases where a borrower is unable to repay the loan, the scheme will cover the loss, paying lending institutions the financial loss incurred by them due to non-repayment of loan. The quantum of repayment depends on the amount borrowed, the borrower (male/female) and the purpose of loan.
Availing a loan under the CGTMSE Scheme isn’t hard, for the government has set eligibility criteria which can be met by almost everyone. Listed below are the main criteria the government expects borrowers to fulfil.
Eligible individuals/organisations can get loans to the tune of Rs 1 crore under this scheme, depending on their business plan and requirement. The cover offered under the Credit Guarantee Policy varies depending on the loan availed, with the maximum guarantee amount being Rs 65 lakh.
A simple process is followed by most lending institutions who are part of the CGTMSE Scheme, with borrowers expected to follow a few basic steps in order to get credit.
Being a scheme which is implemented by Member Lending Institutions (MLIs) on behalf of the government, there are certain fees and charges associated with it. One can classify the fees into two major categories, a Guarantee Fee and an Annual Service Fee.
Guarantee fee – Each MLI is expected to pay a guarantee fee to the trust, with this amount depending on the quantum of credit provided. MLIs are expected to pay this fee within a period of 30 days from disbursement of credit. The table below highlights the guarantee fee applicable in different cases.
|Amount Sanctioned (Rs)||Guarantee fee for borrowers from North East||Guarantee fee for others|
|0.75%||1% of amount sanctioned|
|>5 lakhs||0.75%||1.5% of amount sanctioned|
|> 50 Lakhs||NA||1.5% of amount sanctioned|
Annual service fee – Each MLI is expected to pay an annual service fee in order to validate the guarantee cover offered under CGTMSE. This fee should be paid before June 1st every year. The table below highlights the annual service fee applicable in different cases.
|Amount Sanctioned (Rs)||Annual service fee|
|0.5% of amount guaranteed|
|>5 lakhs||0.75% of amount guaranteed|
Note: While the interest rate is to be borne by the borrower, MLIs can choose to pay the annual service/guarantee fee through their own funds or pass the fee to borrowers.
Note: The trust can change the annual service fee/guarantee fee at its own discretion and applicants should check prevailing rates at the time of borrowing.