Borrowing under Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) Scheme:

There are more than 2.6 Crores MSMEs (Micro, Small and Medium Enterprises) according to the Ministry of Micro, Small and Medium Enterprises (MSME) database. The sector accounts for 45 per cent of manufactured output and 8 per cent of the Gross Domestic Product (GDP). Approximately, 4o% of the export from our country is contributed by this sector. It created employment opportunities for more than 6 Crore people which is next only to the agriculture which employs majority of our population. Every Startup, SSI or SME faces shortage of working capital finance so as to grow their business, since Lenders require certain percentage of collateral as security so as to take higher exposure. In such a situation CGTMSE Scheme comes to the rescue. Sometimes Vintage of the entity is a challenge for financial institutions to lend to SSI/SME.
CGTMSE Scheme is a ray of hope for growing SSI and SME wherein they can avail collateral free loan provided they meet the eligibility criteria.

Since its inception in 2000, CGTMSE has been quite successful in its purpose and has increased its outreach considerably. A total of 7,92,229 accounts have been accorded guarantee approval for Rs. 37,139.31 Crore as of March, 2012.

"Any collateral / third party guarantee free credit facility (both fund as well as non fund based) extended by eligible institutions, to new as well as existing Micro and Small Enterprise, including Service Enterprises, with a maximum credit cap of Rs.100 lakh (Rupees Hundred lakh only) are eligible to be covered.

The guarantee cover available under the scheme is to the extent of 75% / 80% of the sanctioned amount of the credit facility, with a maximum guarantee cap of Rs.62.50 lakh / Rs. 65 lakh. The extent of guarantee cover is 85% for micro enterprises for credit up to Rs.5 lakh.
 The extent of guarantee cover is 80%(i) Micro and Small Enterprises operated and/or owned by women; and (ii) all credits/loans in the North East Region (NER). In case of default, Trust settles the claim up to 75% (or 80%) of the amount in default of the credit facility extended by the lending institution.
 The lender should cover the eligible credit facilities as soon as they are sanctioned.  In any case, the lender should apply for guarantee cover in respect of eligible credits sanctioned in one calendar quarter latest by end of subsequent calendar quarter.  Guarantee will commence from the date of payment of guarantee fee and shall run through the agreed tenure of the term credit in case of term loans / composite loans and for a period of 5 years where working capital facilities alone are extended to borrowers, or for such period as may be specified by the Guarantee Trust in this behalf.

"Availability of bank credit without the hassles of collaterals / third party guarantees would be a major source of support to the first generation entrepreneurs to realise their dream of setting up a unit of their own Micro and Small Enterprise (MSE). Keeping this objective in view, Ministry of Micro, Small & Medium Enterprises (MSME), Government of India launched Credit Guarantee Scheme (CGS) so as to strengthen credit delivery system and facilitate flow of credit to the MSE sector. To operationalise the scheme, Government of India and SIDBI set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).
The main objective is that the lender should give importance to project viability and secure the credit facility purely on the primary security of the assets financed.  The other objective is that the lender availing guarantee facility should endeavor to give composite credit to the borrowers so that the borrowers obtain both term loan and working capital facilities from a single agency.  The Credit Guarantee scheme (CGS) seeks to reassure the lender that, in the event of a MSE unit, which availed collateral free credit facilities, fails to discharge its liabilities to the lender, the Guarantee Trust would make good the loss incurred by the lender up to 75 / 80/ 85 per cent of the credit facility.

New and existing Micro and Small Enterprises engaged in manufacturing or service activity excluding 'Retail Trade' and also entities in service sector as per RBI's guidelines on 'Lending to Priority Sector' and MSMED Act, 2006 except retail trade are eligible for coverage under the scheme.

There are a few shortcomings in the scheme such as:

  • Some of the branch managers of the bank are not aware of the scheme. As a result they do not provide required information to the customers regarding the scheme.
  • Collateral free loan of only up to 100 Lakhs is available under the scheme.
  • Turnaround time for sanctioning of loan is little high. It takes on an average 1 month for the entire process.
  • Loan for only manufacturing and services is available under the scheme; trade is not covered under CGTMSE scheme.
  • Most of the customers who availed facility under the scheme speak favourably about it barring a few who felt it could be improved further. According to them, existing procedures and requirements for obtaining loan under the scheme could be further simplified. Thus, the current turnaround time of around one month can be reduced which seems long for those who seek urgent credit for running there day to day operations.

CGTMSE trust and MLIs can further improve the scheme by taking certain steps to benefit this important section of our society:

  • Simplify existing procedures and requirements for obtaining credit under the scheme
  • Reduce the current turnaround time of on an average 30 days for loan under this facility.
  • Based on the changing times, increase the credit limit under the scheme currently 100 Lakhs.
  • Increase the awareness level of the different services offered by the bank among customers. This can be done by arranging workshops or taking part in trade exhibitions and fairs. Mainly, advertising efforts can be increased.
  • Encourage the communication and transaction between customers, bank officials and other branches through an email account. This will reduce the lead time considerably as well as hassles of unnecessary bank visits.
  • Extend the scheme to other sectors such as trade after doing feasibility study.

The total outstanding under MSE sector as on 31.03.2013 is Rs. 45,127.80 crores and total MSME sector is Rs. 57,227.07 crores.

For detailed guidelines of CGTMSE Scheme please refer -