Micro and Small Enterprises for Small Business Financing Options CGTMSE Scheme that Guarantee Small Business Loan.
Hi Readers,
The Government of India has launched the CGTMSE scheme. This scheme is like a safety net for small businesses in India, helping them get loans more easily from banks without needing to provide a lot of collateral (like property or assets). This means if a small business wants to grow or needs money to keep running smoothly, they can borrow from banks with less worry about the usual requirements. The scheme encourages more people to start businesses and helps existing ones grow by making it easier to get the money they need. Overall, it's meant to support small business owners and make it simpler for them to get financial help when they need it.
India has an estimated 26 million micro and small enterprises (MSEs) that provide employment to approximately 60 million people. The MSE sector contributes about 45% of the manufacturing sector output and 40% of the nation's exports. A significant challenge faced by MSEs is the non-availability of timely and adequate credit at reasonable interest rates. One of the major reasons for the low availability of bank finance to this sector is the high-risk perception of banks in lending to MSEs, leading to a demand for collaterals, which these enterprises often lack. This issue is more acute for micro enterprises requiring small loans and first-generation entrepreneurs.
The Credit Guarantee Fund Scheme is like having a special friend who promises to help you if you ever need to borrow some money for your lemonade stand. This friend will make sure that the person lending you the money doesn't have to worry about you not being able to pay it back. So, you can get the money you need to buy more lemons and cups, and your friend will make sure everything goes smoothly.
This scheme is really helpful for small businesses like your lemonade stand because it gives them the confidence to grow and make more yummy lemonade for everyone to enjoy!
To address this, the Government of India launched the Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGMSE). This scheme aims to provide collateral-free credit to the MSE sector, including both existing and new enterprises. The Ministry of Micro, Small, and Medium Enterprises and the Small Industries Development Bank of India (SIDBI) established a Trust named the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement the scheme. The scheme was formally launched on August 30, 2000, and has been operational since January 1, 2000. The corpus of CGTMSE is contributed by the Government and SIDBI in a 4:1 ratio, amounting to Rs.1906.55 crore up to March 31, 2010. As announced in the MSEs package, the corpus is to be increased to Rs.2500 crore by the end of the 11th Plan.
Know Eligible Lending Institutions
The institutions eligible under the scheme include scheduled commercial banks (Public Sector Banks, Private Sector Banks, Foreign Banks) and select Regional Rural Banks (classified as 'Sustainable Viable' by NABARD). Additionally, the National Small Industries Corporation Ltd. (NSIC), North Eastern Development Finance Corporation Ltd. (NEDFi), and SIDBI are also eligible institutions. As of March 31, 2010, there were 112 eligible lending institutions registered as Member Lending Institutions (MLIs) of the Trust. These comprised 27 Public Sector Banks, 16 Private Sector Banks, 61 Regional Rural Banks, 2 Foreign Banks, and 6 other institutions (NSIC, NEDFI, SIDBI, and The Tamil Nadu Industrial Investment Corporation).
What are Eligible Credit Facility?
The credit facilities eligible for coverage under the scheme include both term loans and working capital facilities up to Rs.100 lakh per borrowing unit, extended without any collateral security or third-party guarantee, to new or existing micro and small enterprises. Rehabilitation assistance extended by the lender to units covered under the guarantee scheme, which may become sick due to factors beyond the control of management, can also be covered under the scheme. If the credit facility exceeds Rs.50 lakh, it can still be covered under the scheme, but the guarantee cover will be limited to Rs.50 lakh. The credit facility should be availed by the borrowing unit from a single lending institution. However, units already assisted by State Level Institutions/NSIC/NEDFi can be covered under the scheme for credit facilities availed from member banks, subject to fulfillment of other eligibility criteria. Any credit facility additionally covered under a scheme operated by the Government or other agencies will not be eligible for coverage under this scheme.
Additionally, the scheme stipulates that for those units covered under the guarantee scheme which may become sick owing to factors beyond the control of management, rehabilitation assistance extended by the lender could also be covered under the guarantee scheme. It is important to note that if the credit facility exceeds Rs.50 lakh, it may still be covered under the scheme, but the guarantee cover will be extended only up to Rs.50 lakh. Another important requirement under the scheme is that the credit facility should be availed by the borrowing unit from a single lending institution. However, the unit already assisted by the State Level Institution/NSIC/NEDFi can be covered under the scheme for the credit facility availed from a member bank, subject to the fulfillment of other eligibility criteria. Any credit facility in respect of which risks are additionally covered under a scheme operated by the Government or other agencies will not be eligible for coverage under this scheme.
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