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 50/75/80/85 per cent of the credit facility.
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 of Rs200 lakh (Rupees Two Hundred lakh only) are eligible to be covered. Recently, guarantee coverage made eligible to select NBFCs.
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 `62.50 lakh / `65 lakh for credit facilities upto `50 lakh. The extent of guarantee cover is 85% for micro enterprises for credit up to `5 lakh. The extent of guarantee cover is 50% of the sanctioned amount of the credit facility for credit above `50 lakh with a maximum guarantee cap of `100 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) for credit facilities upto `50 lakh. 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 for credit facilities upto `50 lakh. The extent of guarantee would reduce to 50% for the loans above `50 lakh upto `200 lakh.
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.
Eligible Lending Institutions
All scheduled commercial banks and specified Regional Rural Banks, NSIC, NEDFi, SIDBI, which have entered into an agreement with the Trust for the purpose. The eligible lending Institutions, on entering with an agreement with CGTMSE, become Member Lending Institutions (MLIs) of CGTMSE.
New as well as existing Micro and Small Enterprises.
Maximum Risk Cover
Of the credit facilities extended by MLIs, Trust shall guarantee, in case of default by the borrower, up to 75 per cent (85% for select category of borrowers), of the defaulted principal amount in respect of term credit including interest on principal for one quarter and / or outstanding working capital advances (inclusive of interest), as on the date of account becoming NPA, or as on the date of filing the suit, whichever is lower. Other charges such as penal interest, commitment charge, service charge, or any other levies/ expenses shall not qualify for the guarantee cover.
For the unit covered under CGTMSE and becoming sick due to factors beyond the control of management, assistance for rehabilitation extended by the lender could also be covered under the scheme provided the overall assistance is within the credit cap of Rs.100 lakh.
Any facility given on the basis of collateral security or third party guarantee shall be disqualified for coverage under the scheme. The Trust also reserves the right to reject any application for the guarantee cover, if it deems necessary.