- January 15, 2025
- Posted by: admin
- Categories: Blog, Supply chain financing
In August 2000, the Government of India, in collaboration with the Small Industries Development Bank of India (SIDBI), launched the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme. This initiative was created to provide collateral-free credit to micro and small enterprises (MSEs), addressing the challenges they face in obtaining financial assistance. The funds for this scheme are contributed in a 4:1 ratio by the Government of India and SIDBI, respectively.
Let’s dive into the details of the CGTMSE scheme, its objectives, features, benefits, and the step-by-step process of availing credit under it.
What is the CGTMSE Scheme?
The CGTMSE scheme is a financial initiative that facilitates easier access to credit for micro and small enterprises (MSEs) in India. It provides collateral-free credit to eligible enterprises, helping them secure the funds required to operate and expand their businesses.
The trust established to oversee the scheme aims to:
- Promote entrepreneurship by removing barriers to credit access.
- Encourage financial institutions to provide credit to MSEs without demanding tangible collateral.
- Foster economic development by supporting the growth of small enterprises.
Objectives of the CGTMSE Scheme
The CGTMSE scheme is designed to address the credit challenges faced by micro and small enterprises. Its primary goals include:
Enhanced Credit Flow:
By providing a credit guarantee cover, the scheme reduces the perceived risk of lending to MSEs. This encourages financial institutions to offer loans more freely, ensuring that enterprises receive the funds needed for working capital and investments.
Promotion of Collateral-Free Credit:
The scheme eliminates the need for tangible collateral or third-party guarantees, thereby simplifying the credit process for MSEs.
Support for Entrepreneurship:
By making credit more accessible, the scheme fosters entrepreneurship, enabling individuals to establish and grow their businesses. This results in job creation, income generation, and overall economic development.
Eligibility Criteria for the CGTMSE Scheme
The CGTMSE scheme outlines specific eligibility requirements for both borrowers and lenders.
Eligible Borrowers:
- New and existing micro and small enterprises (MSEs) operating in the manufacturing or service sectors.
- Business entities such as:
- Proprietorships
- Partnerships
- Limited Liability Partnerships (LLPs)
- Private Limited Companies
- Exclusions: Agriculture-based businesses, Self-Help Groups (SHGs), and certain other sectors are not eligible.
Eligible Lenders:
- Commercial banks, selected regional rural banks (RRBs), and certain state financial corporations.
- Non-Banking Financial Companies (NBFCs), Small Finance Banks (SFBs), and institutions like SIDBI, NSIC, and NEDFI.
- From 2023, Microfinance Institutions (MFIs) have also been included in the list of eligible lenders.
Key Highlights of the CGTMSE Scheme 2023
Finance Minister Nirmala Sitharaman, in her Budget 2023 speech, announced transformative updates to the CGTMSE scheme. These include:
- Infusion of Funds: A corpus of ₹9,000 crore was infused into the scheme, effective from April 1, 2023.
- Increased Credit Availability: Additional collateral-free credit of ₹2 lakh crore is now accessible to MSEs.
- Reduced Cost of Credit: The cost of borrowing has been reduced by 1%.
- Mandatory Udyam Registration: MSEs seeking credit under the scheme must provide their Udyam Registration Number (URN).
Features of the CGTMSE Scheme
1. Credit Guarantee Cover
- For loan amounts up to ₹50 lakh, the scheme provides a repayment guarantee of 75% to 85% (in certain cases).
- Loans exceeding ₹50 lakh but under ₹1 crore are covered up to 50%.
2. Special Provisions for Women and NE Region:
- Women entrepreneurs and businesses in the North East Region (NER) receive a guarantee cover of 80%.
- Micro-enterprises with loans up to ₹5 lakh receive an 85% guarantee.
3. Rehabilitation Support:
- In cases of business failure beyond the management’s control, the scheme offers rehabilitation support of up to ₹1 crore to help revive the enterprise.
Benefits of the CGTMSE Scheme
- Collateral-Free Credit: The scheme eliminates the need for tangible collateral, making it easier for MSEs to access loans.
- Increased Loan Limits: With the ceiling for guarantee coverage increased to ₹500 lakh, enterprises can now access higher loan amounts.
- Lower Cost of Borrowing: The reduction in guarantee fees makes borrowing more affordable for MSEs.
- Special Benefits for Marginalized Groups: Reduced fees and higher coverage are provided for SC/STs, women entrepreneurs, ZED-certified units, and enterprises in Aspirational Districts.
Fee and Limit Structure
Annual Guarantee Fee (AGF):
The AGF varies based on the borrower’s risk profile. Lending institutions with a better portfolio are offered a 10% discount, while high-risk lenders face a premium of up to 70%.
Credit Limit:
The scheme guarantees credit up to ₹500 lakh, with a maximum exposure of ₹375 lakh (75% of the defaulted amount).
Coverage Criteria of CGTMSE Scheme
1. Micro Enterprises:
- Loans up to ₹5 lakh: 85% coverage.
- Loans above ₹5 lakh to ₹50 lakh: 75% coverage.
- Loans above ₹50 lakh to ₹500 lakh: 75% coverage.
2. North East Region (NER):
Loans up to ₹50 lakh: 80% coverage.
Special Categories:
- Women entrepreneurs, SC/ST individuals, ZED-certified units, and others receive 85% coverage regardless of the loan amount.
Process of Availing MSE Loans Under CGTMSE
- Establishing the Business Entity: The first step is to form a legal entity, such as a private limited company, LLP, or proprietorship. Necessary approvals and tax registrations must be obtained.
- Preparing a Business Report: A detailed business plan, including market analysis, financial projections, and promoter profiles, is submitted along with the loan application.
- Loan Sanctioning by the Bank: The bank evaluates the business’s feasibility before approving the loan.
- Obtaining Guarantee Cover: After loan approval, the bank applies to CGTMSE for guarantee cover. The borrower must pay the applicable fees and charges.
Also Read: Best Credit Facilitation Schemes For MSMEs In India
Role of Credlix in Global Supply Chain Finance
In today’s interconnected world, access to credit and financial support is essential for business growth. While schemes like CGTMSE help MSEs secure collateral-free credit, companies like Credlix complement these efforts by offering comprehensive supply chain finance solutions.
Credlix provides:
- Efficient cash flow management for businesses.
- Global financial solutions to support enterprise growth.
By bridging the gap between credit requirements and supply chain demands, Credlix ensures businesses thrive in competitive markets.
Conclusion
This detailed exploration of the CGTMSE scheme highlights its significant role in fostering entrepreneurship and economic development. With enhanced features and benefits introduced in 2023, the scheme continues to empower micro and small enterprises across India. Combined with innovative solutions from companies like Credlix, MSEs have unprecedented opportunities for growth and success.