CGTMSE-Credit Guarantee Fund Trust for Micro and Small Enterprises

What is the CGTMSE Scheme?

A brainchild of the Ministry of Micro, Small and Medium Enterprises, the CGTMSE Scheme is a unique offering which aims to bridge the gap between a business idea and its execution, offering financial support to entrepreneurs. Under the scheme, eligible members can get credit facilities from banks to finance medium and small enterprises. Loans up-to a maximum of Rs1crore can be availed, with the differentiating factor being the Credit Guarantee provided by the government.

This Credit Guarantee offers security to entrepreneurs in the event of their business failing. A maximum cover equivalent to 85% of the loan amount is available under the scheme. In cases where a borrower is unable to repay the loan, the scheme will cover the loss, paying lending institutions the financial loss incurred by them due to non-repayment of loan. The quantum of repayment depends on the amount borrowed, the borrower (male/female) and the purpose of loan.

Advantages of CGTMSE

MSEs are an important part of the Indian economy and contribute approx. 10% to the country’s GDP. They give employment to more than 7 crores people even though they face many hurdles in procuring finances and business loans. Despite their large presence across various market segments, lending institutions stay apprehensive about the high rate of NPAs in small and micro businesses. Even though it is a valid risk, the liability that these factors entail creates problems for both the businesses and the banks. For instance, SMEs do not find the loan approval procedure simple or business-friendly. Banks prefer not to lend unless they have checked and rechecked all documents and got a guarantee.

To counter such situations, CGTMSE has come forward to play a crucial role. It has shared the risk factor and has helped bring relief to both borrowers and lending institutions.

CGTMSE offers significant advantages for new and existing MSMEs. The major advantage of CGTMSE is that you can acquire cover for the credit facility even if you have minimum or no experience in setting up a business. Although the credit cover remains optional under this scheme, the MSME Ministry has given due importance to the scheme and monitored its progress on a regular basis.

CGTMSE Scheme Salient Features

• Micro & Small Enterprises as per MSMED Act eligible.
• Credit guarantee for MSE loans up to 1 crore, without collateral and third party guarantee.
• Both Manufacturing and Service sectors covered.
• Credit for retail trade, educational/training institutions, and SHGs are not eligible for coverage.
• All fund / non-fund based facility covered.
• Maximum Guarantee Cover of up to 85% of credit facility covered under CGS.
• Guarantee coverage is 50% for credit facility covered under CGS above 50 lakh.
• 133 Banks / RRBs / other lending institutions registered as MLIs with CGTMSE (26 PSU Banks, 21 private Banks, 73 RRBs, 9 Financial Institutions and 4 Foreign Banks).

Eligibility

All new and existing micro and small enterprises are eligible for this credit guarantee under certain conditions. The conditions are:

1. The trust guarantees up to 75% of the defaulted principal amount (up to 85% of the defaulted principal amount for select category of borrowers). The cover comes with a maximum guarantee cap of Rs. 62.50 lakh / Rs. 65 lakh for the credit facilities up to Rs. 50 lakh.
2. The term credit including interest on principal is covered for a period of one-quarter and/or outstanding capital advances including the interest, as on the date of the account becoming a non performing asset (NPA) or as on the date of filing the suit (whichever is lower).
3. The extended guarantee cover for micro enterprises for credit up to Rs. 5 lakhs is 85%. Also, the extent of guarantee cover remains 50% of the sanctioned amount of the credit facility for credit above Rs. 50 lakhs with a maximum guarantee cover of Rs. 100 lakhs (or Rs. 1 crore).
4. Other charges such as penal interest, commitment charge, service charge including any other levy/ expenses do not qualify for the guarantee cover.

Small and micro enterprises owned and/or operated by women 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 lakhs. Retail trade, educational institutions, agriculture, training institutions, and self-help groups (SHGs) are not eligible for guarantee cover under CGTMSE.

CGTMSE also provides rehabilitation assistance to the business units. If a business unit is in a bad condition due to factors that are beyond the control of the management, then CGTMSE covers the loan for rehabilitation extended by the lender within the credit cap of Rs. 100 lakhs (Rs. 1 crore).

CGTMSE Scheme-Process of Loan Application

Steps to Follow for Loan Application under CGTMSE Scheme

First of all, you can’t apply for the loan under CGTMSE Scheme online. You have to contact to the banks nearby you. Broadly, there are four steps for applying for the loan under this scheme.

Step 1 – Form the Business Organization

Forgetting the fund for a new business, you have to form the business organization first. According to the mode of operation, register your business. Additionally, obtain the necessary licenses and permissions from the respective Govt. authority. Furthermore, open a current bank account and apply for business PAN Card.

Step 2 – Prepare the Project Report or Business Plan

This is the most important aspect of getting the bank loan approved under this scheme. Because the project viability is the most crucial factor that the bank considers. Therefore, you must submit a full-proof project report with market analysis, ROI, Break Even and Payback calculations.

It is advisable to take the help from the professional to craft the project report properly. Additionally, you must put the feasible data and information to make it acceptable to the banks.

Step 3 – Apply for the sanction of Bank Loan

After getting the project report, you can apply for the loan. It is advisable to talk with at least 2 to 3 banks that are nearby you. If you already have an account in any of nearby bank, the first thing is to start talking to them.

Step 4 – Get Coverage under CGTMSE Scheme

After getting the sanction of the loan, the bank will apply for the subsidy to the CGTMSE organization. For the approval of the scheme, the bank needs to submit several documents. After the approval, you have to pay the CGTMSE guarantee and service fee if any.

Scope and Extent of the Scheme

1. Subject to the other provisions of the Scheme, the Trust undertakes, in relation to credit facilities extended to an eligible borrower from time to time by an eligible institution which has entered into the necessary agreement for this purpose with the Trust, to provide a guarantee on account of the said credit facilities.
2. The Trust reserves the discretion to accept or reject any proposal referred by the lending institution which otherwise satisfies the norms of the Scheme.

Credit facilities eligible under the Scheme

The Trust shall cover credit facilities (Fund based and/or Non fund based) extended by Member Lending Institution(s) to a single eligible borrower in the Micro and Small Enterprises sector for credit facility (i) not exceeding 50 lakh (Regional Rural Banks/Financial Institutions) and (ii) not exceeding 200 lakh (Scheduled Commercial Banks and select Financial Institutions) (iii) above 10 lakh and not exceeding 200 lakhs for Non-Banking Financial Company (NBFCs) by way of term loan and/or working capital facilities on or after entering into an agreement with the Trust, without any collateral security and/or third party guarantees or such amount as may be decided by the Trust from time to time.

Provided that the lending institution applies for guarantee cover in respect of credit proposals sanctioned in the quarter April-June, July-September, October-December and January-March prior to expiry of the following quarter viz. July-September, October-December, January-March and April June respectively.

Provided further that, as on the material date

• The dues to the lending institution have not become bad or doubtful of recovery; and / or
• The business or activity of the borrower for which the credit facility was granted has Not ceased; and / or
• The credit facility has not wholly or partly been utilised for adjustment of any debt deemed bad or doubtful of recovery, without obtaining a prior consent in this regard from the Trust.

Credit facilities extended by more than one bank and/or financial institution jointly and/or separately to eligible borrower up to a maximum of `200 lakh per borrower subject to ceiling amount of individual MLI or such amount as may be specified by the Trust.

Credit facilities not eligible under the Scheme

The following credit facilities shall not be eligible for being guaranteed under the Scheme: –

• Any credit facility in respect of which risks are additionally covered under a scheme operated / administered by Deposit Insurance and Credit Guarantee Corporation or the Reserve Bank of India, to the extent they are so covered.
• (ii) Any credit facility in respect of which risks are additionally covered by Government or by any general insurer or any other person or association of persons carrying on the business of insurance, guarantee or indemnity, to the extent they are so covered.
• Any credit facility, which does not conform to, or is in any way inconsistent with, the provisions of any law, or with any directives or instructions issued by the Central Government or the Reserve Bank of India, which may, for the time being, be in force.
• Any credit facility granted to any borrower, who has availed himself of any other credit facility covered under this scheme or under the schemes mentioned in clause (i), (ii) and (iii) above, and where the lending institution has invoked the guarantee provided by the Trust or under the schemes mentioned in clause (i), (ii) and (iii) above, but has not repaid any portion of the amount due to the Trust or under the schemes mentioned in clause (i), (ii) and (iii) above, as the case may be, by reason of any default on the part of the borrower in respect of that credit facility.
• Any credit facility which has been sanctioned by the lending institution against collateral security and / or third party guarantee. due diligence in selecting commercially viable proposals
• Any credit facility which has been sanctioned by the lending institution (all scheduled commercial banks, selected financial institutions and RRBs) with the maximum interest rate not more than 14% p.a. including cost of guarantee cover would be eligible for coverage under CGS. For Non-Banking Financial Company (NBFCs), effective interest rate inclusive of cost of guarantee cover not to exceed 18% p.a. for all MSE loans or as may be specified by CGTMSE Board from time to time.
• Any Credit facility for loans upto 10 lakh to Micro Enterprises shall not be eligible to cover under CGTMSE if the said credit facility has been covered under MUDRA guarantee Scheme through NCGTC Ltd. while applying for the guarantee cover for such proposals.
• Agreement to be executed by the lending institution A lending institution shall not be entitled to a guarantee in respect of any eligible credit facility granted by it unless it has entered into an agreement with the Trust in such form as may be required by the Trust for covering by way of guarantee, under the Scheme all the eligible credit facilities granted by the lending institution, for which provision has been made in the Scheme.

Responsibilities of lending institution under the scheme:

i) The lending institution shall evaluate credit applications by using prudent banking judgement and shall use their business discretion / and conduct the account(s) of the borrowers with normal banking prudence. Diligence in selecting commercially viable proposals and conduct the account(s) of the borrowers with normal banking prudence.

ii) The lending institution shall closely monitor the borrower account.

iii) The lending institution shall safeguard the primary securities taken from the borrower in respect of the credit facility in good and enforceable condition.

iv) The lending institution shall ensure that the guarantee claim in respect of the credit facility and borrower is lodged with the Trust in the form and in the manner and within such time as may be specified by the Trust in this behalf and that there shall not be any delay on its part to notify the default in the borrowers account which shall result in the Trust facing higher guarantee claims.

v) The payment of guarantee claim by the Trust to the lending institution does not in any way take away the responsibility of the lending institution to recover the entire outstanding amount of the credit from the borrower. The lending institution shall exercise all the necessary precautions and maintain its recourse to the borrower for entire amount of credit facility owed by it and initiate such necessary actions for recovery of the outstanding amount, including such action as may be advised by the Trust.

vi) The lending institution shall comply with such directions as may be issued by the Trust, from time to time, for facilitating recoveries in the guaranteed account, or safeguarding its interest as a guarantor, as the Trust may deem fit and the lending institution shall be bound to comply with such directions.

vii) The lending institution shall, in respect of any guaranteed account, exercise the same diligence in recovering the dues, and safeguarding the interest of the Trust in all the ways open to it as it might have exercised in the normal course if no guarantee had been furnished by the Trust. The lending institution shall, in particular, refrain from any act of omission or commission, either before or subsequent to invocation of guarantee, which may adversely affect the interest of the Trust as the guarantor. In particular, the lending institution should intimate the Trust while entering into any compromise or arrangement, which may have effect of discharge or waiver of personal guarantee(s) or security. The lending institution shall also ensure either through a stipulation in an agreement with the borrower or otherwise, that it shall not create any charge on the security held in the account covered by the guarantee for the benefit of any account not covered by the guarantee, with itself or in favour of any other creditor(s) without intimating the Trust. Further the lending institution shall secure for the Trust or its appointed agency, through a stipulation in an agreement with the borrower or otherwise, the right to list the defaulted borrowers’ names and particulars on the Website of the Trust.