Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGS-I Scheme) came into force from August 1, 2000 covering eligible credit facilities extended by the Member Lending Institutions (MLIs) to eligible borrowers effective from June 1, 2000. The Scheme provides Guarantee cover for sanction of collateral free loans to the entrepreneurs by Banks/FIs.Credit Guarantee Funds Trust for Micro and Small Enterprises (CGTMSE) is a trust established by the Government of India, under the Ministry of Micro, Small and Medium Enterprises (MoMSME) and Small Industries Development Bank of India (SIDBI). Launched in 2000, the CGTMSE scheme offers credit guarantees to financial institutions that offered credit facilities up to Rs. 2 crores has now been raised to Rs. 5 crores. CGTMSE scheme offers credit guarantees from 75% to 85% to MSEs across India.
CGTMSE Organization
Availability of bank loan without any collateral is a major requirement for boosting first Generation Entrepreneurship in India. To help millions of first-generation Entrepreneurs start their business with a bank loan (without the hassles of collateral), the Ministry of Micro, Small & Medium Enterprises (MSME) launched the CGTMSE Scheme. The CGTMSE scheme or Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is operationalized by SIDBI and the Government of India.
| nterest Rates | As per RBI’s Guidelines is eligible for coverage under CGTMSE |
| Eligible Activities |
|
| Loan Amount |
|
| Guarantee Coverage | From 75% – 85% (50% Coverage for retail activity) |
| Collateral / Third Party Guarantee | Not required |
| Eligible Member Lending Institutions (MLIs) | More than 100: PSUs, NBFCs, RRBs, Private Banks, SUCBs, Fls, SFBs, and Foreign Banks |
| Annual Guarantee Fee for amount up to Rs. 1 crore | Fee revised from 2% and reduced to as low as 0.37% |
CGTMSE Scheme
The main objective of the CGTMSE scheme is that banks should give importance to project viability or business model validation and secure the loan facility only based on the assets financed by the bank loan. In the event a Micro or Small Business (MSME), which availed loan under the CGTMSE scheme, fails to repay the loan commitment to the bank, the CGTMSE organization would make good the loss incurred by the bank up to 85% of the credit facility.
Under the CGTMSE scheme, a bank loan of up to Rs.1 crore provided to a startup or an existing business in the form of term loan or working capital or both can be covered. Businesses in the manufacturing sector and service sector are eligible. However, retail trade, educational institutions, agriculture, Self Help Groups (SHGs) and training institutions will not be eligible to obtain a loan under CGTMSE Scheme.
CGTMSE Scheme Cover
For a loan to be covered under the CGTMSE Scheme, the borrower is required to pay an additional CGTMSE Guarantee and CGTMSE Service fee on top of the interest rate charged by the Bank. Presently, CGTMSE guarantee fee is payable at 1.5% (0.75% in case of North Eastern Region including the state of Sikkim) on the credit facility agreed to be covered by the CGTMSE Scheme. Similarly, the CGTMSE annual service fee would be payable @0.75% on the guaranteed amount. However as per the “Policy package for stepping up credit to Small and Medium Enterprises“, Public Sector Banks are encouraged to absorb the Annual Service Fee in excess of 0.25% p.a. for all the borrowers falling under the following categories:
- Loans of up to Rs. 2.00 lakh;
- Loans provided to eligible women entrepreneurs;
- Loans provided to eligible borrowers located in the North Eastern Region (including the State of Sikkim) and Jammu & Kashmir.
Benefits of CGTMSE Scheme
- Ceiling for Guarantee coverage raised from Rs. 200 lakh to Rs. 500 lakh
- Guarantee fee reduced to diminish the overall cost of borrowings to MSEs
- Micro Finance Institutions as Member Lending Institutions (MLIs) are now eligible
- Concessions related to fees and increased coverage to SC/STs
- Reduced Guarantee fee by 10% and coverage extent increased to 85% to Women, ZED Certified Units and Units in Aspirational Districts
- Annual Guarantee Fee structure revised and fee reduced to as low as 0.37%
Eligibility Criteria
Lending institutions that offer funding support to specific sectors are in agreement with the CGTMSE scheme. The entities and institutions that are eligible to avail business loans under the CGTMSE scheme are as follows:
Eligible Borrowers
- All Existing and New Micro and Small Enterprises (MSEs)
Lending Institutions offering funds under CGTSME Scheme
- Scheduled Commercial Banks (SCBs)
- Regional Rural Banks (RRBs)
- Small Finance Banks (SFBs)
- Non-banking Financial Companies (NBFCs)
- Small Industrial Development Bank of India (SIDBI)
- National Small Industries Corporation (NSIC)
- North Eastern Development Finance Corporation Ltd. (NEDFi)
Small and Micro-Enterprises owned and/or operated by Women Entrepreneurs are eligible for a Guarantee Cover of 80%, whereas all the credit/loans in the North East Region (NER) for credit facilities are eligible for a guarantee of Rs. 50 lakh.
How to get Loan under CGTMSE Scheme
Business Entity Formation
Prior to applying for a loan under the CGTMSE Scheme, incorporate a Private Limited Company or LLP or One Person Company or Proprietorship, as per the requirements of the business and obtain the necessary tax registrations and approvals for doing business / executing the project.
Prepare Business Plan or Project Report
Conduct a market analysis for the market and prepare a business plan or project report containing information like business model, promoter profile, projected financials, etc., It is important that the business plan or project report is prepared by professionals with prior experience, as “The main objective of the CGTMSE scheme is that banks should give importance to project viability or business model validation and secure the loan facility without any collateral.”.
Obtain Sanction for Bank Loan
Submit the business plan or project report with the necessary banks that provide loan under CGTMSE Scheme and request for sanction of bank loan from Banks providing loan under CGTMSE Scheme. The request for a bank loan can contain term loan and working capital facilities. The banks will process the loan application and accord sanction as per the Bank’s policy.
Obtaining CGTMSE Cover
Once the bank loan is sanctioned by the Bank, the bank will apply to CGTMSE organization and obtain CGTMSE scheme cover for the loan sanctioned. Once approved by the CGTMSE organization, the loan will be under the CGTMSE scheme and the borrower will be required to pay the CGTMSE guarantee and CGTMSE service fee.
FAQs
When can the eligible lending institutions apply for guarantee cover in respect of eligible credit facilities under the scheme?
Eligible lending institutions have to enter into a one-time agreement with CGTMSE for becoming MLIs of the trust. MLIs then can apply for a guarantee cover in respect of the eligible credit facility sanctioned to an eligible borrower. The MLIs can apply for a guarantee cover in respect of the credit proposals sanctioned in the quarter of April-June, July-September, October-December, and January-March before the quarter ends.
Are small road transporters and water transporters eligible for cover under the scheme?
Yes, they are. Small road and water transport loans that are approved by MLIs are eligible for cover under this scheme. All small business owners in this industry who are seeking a loan can request the lender to add the CGTMSE cover to their loan applications.
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