How Small Businesses Can Benefit From Unsecured Loans Up To Rs 2 Cr Using The Credit Guarantee Program

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Lack of access to timely and adequate credit at reasonable interest rates is the biggest challenge facing small businesses in India.

According to Dun & Bradstreet Research, for every 100 companies in India, there are more than 95 microenterprises. Indeed, only four percent of MSMEs in India have access to a formal source of finance.

The perception of high risk in loans to MSMEs is a major cause of this lack of access to finance. Additionally, banks often insist on collateral collateral – something that is not readily available to all MSMEs.

To combat this, the Government of India (GoI) launched the Micro and Small Business Credit Guarantee Fund System (CGS) to provide unsecured credit to micro and small businesses.

the Ministry of MSMEs and Small Industries Development Bank of India (SIDBI) established the Micro and Small Business Credit Guarantee Trust Fund (CGTMSE) in 2000 to implement the credit guarantee fund system. The CGTMSE corpus is contributed by GoI and SIDBI in a ratio of 4: 1 respectively.

How it works

The scheme guarantees the credit institution that if a borrowing MSE unit fails to meet its obligations to the lender, the trust will compensate the loss suffered by the lender up to a certain percentage of the credit facility.

Under this program, unsecured loans (fund-based and non-fund-based) granted by eligible financial institutions to new and existing micro and small businesses, up to a limit of Rs 200 lakh (Rs 2 crore), can be covered by the fund trust.

Financial institutions eligible to lend under the scheme are scheduled commercial banks such as public sector banks, private sector banks, foreign banks and some regional rural banks (which have been classified as “sustainable viable” by the National Bank for Agriculture and Rural Development). NBFC and Small financing banks also recently became eligible.

Some eligible credit institutions are Delhi Financial Corporation, Kerala Financial Corporation, Jammu & Kashmir Development Finance Corporation Ltd, Andhra Pradesh State Financial Corporation, Export Import Bank of India, The Tamil Nadu Industrial Investment Corporation Ltd., National Small Industries Corporation (NSIC) , North Eastern Development Finance Corporation (NEDFI) and Small Industries Development Bank of India (SIDBI).

The CGTMSE has also set up a Hybrid security product for which credit institutions will be authorized to obtain a guarantee for part of the credit facility. In such cases, the CGTMSE will have an equal charge on the primary security as well as on the collateral guarantee provided by the borrower.

Warranty coverage

Guarantee coverage is available under the scheme to the extent of 85 percent for micro-enterprises for credit up to Rs 5 lakh. The warranty coverage is 50 percent the amount sanctioned for a loan ranging from Rs 10 lakh to Rs 100 lakh per MEP borrower for the retail activity.

The extent of warranty coverage is 80 percent for MSEs managed and / or owned by women. Warranty is also applicable on all credits / loans in the North East region (NER) for credit facilities up to Rs 50 lakh.

In the event of default on the credit facility granted by a lending institution, the trust settles the claim up to 75% of the overdue amount, for credit facilities up to Rs 200 lakh.

For units covered by the scheme which become ill due to factors beyond the control of management, rehabilitation assistance may also be granted by the lender.

The collateral coverage under the scheme is for the agreed term of the term loan / composite credit. In the event of working capital, the guarantee is covered for five years or in increments of five years.

However, any business with a credit facility whose risks are covered by a different scheme, managed by the government or other agencies, will not be eligible for CGTMSE coverage.

How to register

Applicants meeting the eligibility criteria can apply to eligible banks, financial institutions or some regional rural banks. apply for loans under CGTSME.

They can contact:

CEO, CGT MSE

Phone. : 022-61437805

Email: pradeepm@cgtmse.in

Or,

DC, O / o DC, MPME

Phone. : 011-23062241

Email: arun_kumar@nic.in

Click here for more information on the plan.


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