The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is a key initiative by the Government of India, implemented in collaboration with the Small Industries Development Bank of India (SIDBI). It was launched in 2000 to promote credit flow to Micro and Small Enterprises (MSEs), especially those that lack collateral security or a third-party guarantee.
Here’s a detailed breakdown of the CGTMSE Scheme:
1. Objective of CGTMSE Scheme
The primary objective of the scheme is to facilitate the flow of institutional credit to MSEs by:
- Mitigating risk for lending institutions by providing a credit guarantee for loans.
- Encouraging financial institutions to lend to micro and small businesses without requiring collateral.
- Supporting first-time entrepreneurs or small businesses with limited financial backing.
2. Eligibility Criteria
The scheme is open to both new and existing MSEs:
- Micro Enterprises: Businesses with investments in plant and machinery or equipment up to ₹25 lakh.
- Small Enterprises: Businesses with investments above ₹25 lakh but up to ₹5 crore.
- Activities Covered: All micro and small enterprises engaged in manufacturing and service activities, including retail trade, educational institutions, and training institutes. However, agriculture, self-help groups (SHGs), and educational/training institutes are excluded.
3. Who Can Apply?
Any eligible MSE can apply for the CGTMSE scheme through the following lending institutions:
- Scheduled Commercial Banks (SCBs), including public sector banks.
- Regional Rural Banks (RRBs).
- Small Finance Banks.
- Non-Banking Financial Companies (NBFCs) (with specific eligibility).
- Financial Institutions that have been approved under CGTMSE.
The MSE applies to the lending institution, which evaluates the loan proposal. The institution then applies for a guarantee cover under the CGTMSE scheme.
4. Credit Facilities Covered
Both Term Loans and Working Capital Loans are covered under the scheme. The following types of credit facilities are eligible:
- Collateral-free Term Loans: Loans provided for acquiring fixed assets like machinery, equipment, or construction.
- Working Capital Loans: To meet day-to-day operational expenses, including the purchase of raw materials and the like.
The total credit facility (including term loans and working capital) provided to an MSE under this scheme cannot exceed ₹2 crore.
5. Guarantee Coverage
The CGTMSE provides guarantee coverage to the lending institution in case of default by the borrower. The coverage varies based on the loan amount, the type of enterprise, and the category of the entrepreneur:
| Loan Amount | Micro Enterprises (up to ₹5 lakh) | MSEs (₹5 lakh – ₹50 lakh) | MSEs (₹50 lakh – ₹2 crore) |
|---|---|---|---|
| Guarantee Coverage | 85% of the sanctioned amount | 75% | 50% |
| Special Coverage | 80% for Women, NER, and others |
For micro-enterprises with loans up to ₹5 lakh, the coverage is as high as 85%. For loans exceeding ₹50 lakh, the coverage drops to 75% (up to ₹50 lakh) and 50% (beyond ₹50 lakh). Women entrepreneurs, units in the North Eastern Region (NER), and others can receive up to 80% guarantee coverage.
6. Tenure and Limit of Coverage
- Amount Covered: The maximum credit facility covered under the scheme is ₹2 crore.
- Tenure: The credit guarantee is extended for a period of up to 5 years.
7. Fees for Guarantee
To avail the benefits of the scheme, lending institutions need to pay a fee to CGTMSE. These are typically passed on to the borrower as part of the loan cost.
- One-time Guarantee Fee: 1% to 1.5% of the loan amount.
- Annual Service Fee: 0.75% to 1.0% per annum on the outstanding loan amount.
The specific fee percentages vary depending on the size of the loan and the type of enterprise.
8. How to Apply for the CGTMSE Scheme?
The process to avail the CGTMSE scheme typically involves the following steps:
- Prepare Business Proposal: The MSE needs to prepare a detailed project report (for term loans) or a financial assessment for working capital.
- Approach Lending Institution: The entrepreneur approaches an eligible bank or financial institution for the loan.
- Loan Appraisal: The lending institution evaluates the loan proposal based on its own credit appraisal norms.
- CGTMSE Application by Lender: If approved, the lender applies for the CGTMSE cover for the loan.
- Sanction and Disbursement: Once the guarantee is granted by CGTMSE, the lender sanctions and disburses the loan.
9. Benefits of CGTMSE Scheme
For Entrepreneurs:
- Collateral-Free Loans: MSEs can avail loans without mortgaging assets, making it easier for small businesses to access credit.
- Encourages Startups: New entrepreneurs without a credit history or collateral are encouraged to venture into business with reduced financial risks.
- Enhanced Loan Accessibility: Increased chances of loan approval due to the credit guarantee, making it easier for MSEs to secure credit.
For Lenders:
- Risk Mitigation: The CGTMSE reduces the risk for banks, encouraging them to lend more to MSEs.
- Protection in Case of Default: If the borrower defaults, the lending institution can claim the guaranteed amount from CGTMSE, reducing the financial loss.
10. Claim Process in Case of Default
If the borrower defaults, the lender can initiate the claim process under the CGTMSE scheme:
- Invocation of Guarantee: The lender can invoke the guarantee if the borrower defaults on payments after necessary recovery efforts.
- Claim Payment: Upon acceptance of the claim, the CGTMSE reimburses a percentage of the defaulted amount (up to the agreed limit of the guarantee).
- Subsequent Recoveries: Any amount recovered by the lender after receiving the guarantee payout must be shared with CGTMSE in the same ratio as the guarantee cover.
11. Recent Amendments and Updates
- Expansion of Coverage: The government has been increasing the coverage and scope of the CGTMSE scheme in recent years, especially in light of COVID-19 and the focus on reviving small businesses.
- Inclusion of NBFCs: NBFCs have also been allowed to extend credit under the scheme, expanding the lending options available to MSEs.
12. Contact Information
MSEs and lending institutions can get more information about the scheme and the application process directly from:
- CGTMSE website: www.cgtmse.in
- Small Industries Development Bank of India (SIDBI): www.sidbi.in
Conclusion:
The CGTMSE scheme is one of the most important schemes for fostering growth in India’s MSE sector. By providing collateral-free credit guarantees, it has helped thousands of small businesses secure the capital they need to grow, innovate, and compete.