CGTMSE (full form: Credit Guarantee Funds Trust for Micro and Small Enterprises) was launched by the Indian Government and the Small Industries Development Bank of India in 2000. Availability of credit without the need for collateral or third-party guarantees would benefit the entrepreneurs looking to launch their Micro and Small Enterprises (MSE). The Indian Government together with the Ministry of Micro, Small and Medium Enterprises, initiated the idea of the Credit Guarantee Scheme (CGS) to strengthen the financing system and speed up loan flow to the MSE sector.
CGTMSE or Credit Guarantee Fund Trust for Micro and Small Enterprises is a joint venture of the Indian Government, SIDBI and the Ministry of Micro, Small, and Medium Enterprises (MSME).
The prime purpose of the scheme is to improve the credit delivery system and provide credit guarantees on no-collateral-required term loans to the MSE sector. Further, it looks to offer the unserved and underprivileged sections access to finance.
The lender is protected by the guarantee if the borrower fails to repay the loan. As a result, the CGTMSE plan focuses on financing for first-generation entrepreneurs to compete without having to worry about collateral or third-party guarantees.
One of the prime goals of the CGTMSE coverage is to establish a robust credit relief system that fosters a better flow of credit to SMEs and MSMEs.
A few characteristics of the CGTMSE scheme are:
CGTMSE scheme details and facilities offered are:
The scheme is open to any existing or new Micro and Small Businesses engaged in service or manufacturing. However, Micro and Small Enterprises like educational institutions, self-help groups, training institutes, and agriculture are excluded.
UDAAN, the official website of the CGTMSE provides a list of member lending institutions and has CGTMSE scheme eligibility criteria.
All the scheduled MLIs, (Member Lending Institutions) including PSUs, private and foreign banks, a few rural and regional banks and any other bank designated by the Government of India, can offer loans under CGTMSE.
A list of some banks with CGTMSE loan interest rates is as follows:
|Banks/NBFCs||Interest Rates (p.a.)|
|HDFC Bank||11.90% – 21.35%|
|IIFL Finance||Starting at 10.45%|
|ICICI Bank||Starting at 18%|
|Bajaj Finserv||Starting at 17%|
|Fullerton Finance||17% – 21% p.a.|
*This table is for educational purposes only.
If the loan is issued based on the project’s feasibility and without any security or third-party guarantee, the CGTMSE loan limit will be up to Rs.200 lakh per qualifying borrower, both fund and non-fund-based.
Member Lending Institutions (MLIs) are required to pay the CGTMSE fee to certify the CGTMSE’s guarantee cover for a given borrower. The annual guarantee fee will increase once the guarantee cover is approved, and it will be applicable for one year from the commencement date of the guarantee cover. The amount of AGF to be levied is determined by the borrower’s category, followed by the credit facility’s quantum.
CGTMSE charges will be imposed on the outstanding loan amount rather than the guaranteed amount for credit facilities sanctioned or renewed to MSEs on or after April 1, 2018, as described below:
Source: CGTMSE official website
Source: CGTMSE official website
The documents required for CGTMSE are:
If enterprises want to opt for a loan they have to follow a simple procedure. The following is the procedure for obtaining a loan through the CGTMSE:
Obtaining bank loans could be a challenging task for micro and small businesses. These traditional lenders often sought/seek documentation and collateral that most small firms lack.
The CGTMSE, run by the Ministry of MSME, assists entrepreneurs in overcoming these obstacles by providing collateral-free loans. The CGTMSE Schemes offer guarantee coverage for new and existing Micro & Small Enterprises engaged in service or manufacturing operations. The schemes do not apply to educational institutions, self-help groups, or retail businesses.
Ans: For preferred claims, there is an 18-month lock-in period following the disbursement of the last tranche of the loan. The lender will prioritize the demand once the defaulted account is termed as a non-performing asset (NPA) and the process of recovery has begun, as determined by CGTMSE from time to time.
Ans: Yes, as long as the maximum cover permitted per beneficiary does not exceed the permissible limit, the scheme allows co-financing with Member Lending Institutions (MLIs).
Ans: The annual guarantee cost can be paid after the claim is filed, but it must be paid before the first instalment of 75% of the guaranteed amount is paid. However, no claim can be filed before the original lock-in term expires and after the guarantee cover tenure expires.
Ans: MLIs issued by CGTMSE are guaranteed. As a result, Micro and Small Business entrepreneurs must contact banks or financial institutions with financing applications. On the CGTMSE website, you may find a list of the Trust’s MLIs.
Ans: The scheme includes female entrepreneurs, and the guarantee covers up to 80% of loans taken out by women entrepreneurs up to a limit of Rs. 40,00,000.
Before you go…
Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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