The Indian Government the launched the scheme for Micro and Small Enterprises (MSEs). Non-availability of adequate and timely funds that are available at a reasonable interest rate is one of the major problems that MSEs face. High risks and insistence from banks to provide collateral are the main reasons why loans are not being provided to MSEs. First-generation entrepreneurs and micro-enterprises face many problems even for securing small loans.
Under the scheme, new as well as existing enterprises will be covered for loans. The Credit Guarantee Fund Trust Scheme for Micro and Small Enterprises (CGT-MSE) was established by the Small Industries Development Bank of India (SIDBI), the Government of India, and the Ministry of Micro, Small, and Medium Enterprises. The CGS-MSE is implemented by the Credit Guarantee Fund Trust Scheme for Micro and Small Enterprises. In the ratio of 4:1, the Government of India and SIDBI make contributions towards the corpus of CGT-MSE.
Lending institutions that are eligible
Given below is the list of financial institutions and banks that are eligible under the scheme:
- Scheduled Commercial Banks (Foreign Banks, Private Sector Banks, and Public Sector Banks)
- Certain Regional Rural Banks (Banks that have been classified by National Bank for Agriculture and Rural Development (NABARD) in the category of ‘Sustainable Viable’).
Under the trust, there were 133 eligible lending institutions that were registered as Member Lending Institutions as of 31 May 2016. The trust consisted of 4 Foreign Banks, 73 Regional Rural Banks, 21 Private Sector Banks, 26 Public Sector Banks, and 9 other institutions (SIDBI, North Eastern Development Finance Corporation (NEDFi), National Small Industries Corporation (NSIC), The Tamil Nadu Industrial Investment Corporation Ltd., Export Import Bank of India, Andhra Pradesh State Financial Corporation, Jammu & Kashmir Development Finance Corporation Ltd., Kerala Financial Corporation, and Delhi Financial Corporation).
Eligible credit Facilities
Existing or new micro and small enterprises are eligible for both the working capital facility and/or term loans of Rs.100 lakh per borrowing unit under this scheme as a credit facility. Micro and small enterprises need not provide security and collateral in order to avail credit facilities as well. In case the units that are offered coverage under the guarantee scheme, which have become sick and cannot be controlled by the management, then rehabilitation assistance will also be provided by the lender. Any additional risks which are provided under the scheme and are operated by other agencies or the Government - will not be provided with any coverage under the scheme.
Cover tenure
Under the scheme, for term loans or composite credit, a guarantee cover is provided for the agreed tenure. Guarantee cover is for 5 years or for a block of 5 years in the case of working capital under the scheme.
Amount of guarantee cover
Up to a maximum of 85% of the amount that has been sanctioned can be provided as guarantee cover as per the scheme. In case the credit facility is Rs.50 lakh, the guarantee cover is 75%. The guarantee cover is 85% for loans up to Rs.5 lakh that have been provided to micro enterprises and 80% for all loans that have been provided to NER (including Sikkim) and MSEs that are owned or operated by women. The guarantee cover is 50% for any credit facility between Rs.50 lakh and Rs.100 lakh. The Trust will settle claims of up to 50%, 75%, 80%, and 85%, depending on the type of guarantee cover in case of any defaults. Therefore, in case of term loans, the amount of default is considered as the principle amount pending and in case of working capital, it is the number of working capital facilities that are outstanding plus the interest rate. The date when the amount is considered is when the account turns into a Non-Performing Asset (NPA).
The fee that is charged for a guarantee
The annual guarantee fee that is charged now is 1.0% p.a. However, for amounts up to Rs.5 lakh, it is 0.75% and any amounts between Rs.5 lakh and Rs.100 lakh that have been provided to units in NER including Sikkim, Micro Enterprises, and women, the interest rate is 0.85%.
Highlights of CGTMSE operations
There have been 24,31,490 proposals that have been made by MSEs, which have been approved for guarantee cover with credit facilities of Rs.1,13,500 crore in total as of 31 May 2016. The below-mentioned table shows the yearly-wise guaranteed approval that has been given:
| Financial Year | Active MLIs | Credit facilities that have been approved | Amount of guarantees that have been sanctioned (Rs. in Crore) | Cumulative guarantees that have been approved (Rs. in Crore) |
|---|---|---|---|---|
| 2000-2001 | 9 | 951 | 6.06 | 6.06 |
| 2001-2002 | 16 | 2296 | 29.52 | 35.58 |
| 2002-2003 | 22 | 4955 | 58.67 | 94.25 |
| 2003-2004 | 29 | 6603 | 117.60 | 211.85 |
| 2004-2005 | 32 | 8451 | 267.46 | 538.62 |
| 2005-2006 | 36 | 16284 | 461.91 | 1,000.53 |
| 2006-2007 | 40 | 27457 | 704.53 | 1,705.06 |
| 2007-2008 | 47 | 30285 | 1,055.84 | 2,701.59 |
| 2008-2009 | 57 | 53708 | 2,199.40 | 4,824.34 |
| 2009-2010 | 85 | 151387 | 6,875.11 | 11,559.61 |
| 2010-2011 | 106 | 254000 | 12,589.22 | 23,846.01 |
| 2011-2012 | 109 | 243981 | 13,783.98 | 37,139.31 |
| 2012-2013 | 117 | 288537 | 16,062.48 | 52,600.07 |
| 2013-2014 | 117 | 348475 | 18,188.12 | 70,026.28 |
| 2014-2015 | 119 | 403422 | 21,274.82 | 90,445.90 |
| 2015-2016 | 119 | 513978 | 19,949.38 | 1,08,990.85 |
| 2016-2017 | 119 | 106634 | 4,037.07 | 1,13,500.61 |
Awareness programmes conducted by the scheme
At various national/state/district fora etc., different programmes are organised by CGT-MSE. The scheme conducts workshops or seminars with the aim of creating awareness of the CGS among the MSE sector, MSE industry associations, banks, etc.
