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Introduction
Credit Guarantee Fund Trust for Micro and Small Enterprises, popularly known as CGTMSE, was launched by the Government of India under the Ministry of Micro Small and Medium Enterprises in the year 2000. The scheme aims to provide financial assistance to the eligible MSME units in the form of credit guarantee on collateral free term loans. It essentially covers the funds received by the MSME units from the eligible partner lenders and provides a percentage of the term loan to the lending institution in the event of a default or the loan turning into a Non-Performing Asset (NPA) for the lender.
This assistance by CGTMSE helps the MSME units in gaining financial assistance from the lenders very easily and also eases the lenders with the reservations on collateral free loans.
The details of the scheme and the assistance provided under the scheme are discussed below.
Eligibility for CGTMSE
The idea of the scheme is to provide a third-party guarantee and collateral for the loans to the MSME sector businesses. The government has laid down guidelines relating to eligibility for lenders as well as borrowers under the scheme.
The details of the eligibility under the scheme are mentioned below.
All-new, as well as existing MSME units, are eligible for the guarantee cover under the scheme.
The lending partners under the scheme are all the scheduled commercial banks, specifies Regional Rural Banks, NSIC, SIDBI, NBFCs, Small Finance Banks (SFBs), NEDFi that are part of the scheme via an agreement with the trust.
The institutes that are not eligible under the scheme are the following activities or entities,
- Retail trade
- Educational institutions
- Self Help Groups (SHGs)
- Training Institutions
- Agriculture
Documents required under CGTMSE
The documents required under the scheme are detailed below.
- KYC documents for Identity proof and Address proof (Aadhaar Card, PAN Card, Passport, Utility Bills, Rent/Lease Agreement, etc.)
- Business Proof (Partnership Deed/ Memorandum and Articles of Association as applicable)
- Business Project report including the Promoter’s profile and contribution, Business Model, Cost report and Financial Statements)
- Duly filled application form
The documents along with the application form is thoroughly reviewed and analyzed for its viability and eligibility. Upon satisfaction of all the relevant parameters set by the lender and the scheme guidelines, the application is approved and the term loan is sanctioned by the lender to the borrower. After sanctioning the loan under the scheme, the lender is responsible for taking the guarantee cover under the scheme and not the borrower.
Features of the Scheme
The details of the scheme like the amount or percentage of guarantee cover provided, rate of interest charged on the term loans, period of loans, other charges etc, are mentioned below.
Percentage of Guarantee Cover under the scheme
The guarantee cover under the scheme is provided on the basis of the category of the borrower or the location of the borrower. The details of the guarantee cover are tabled below.
Particulars | Maximum credit guarantee provided |
Micro Enterprises | - Up to Rs. 5,00,000 – 85% of the default amount (maximum Rs. 4,25,000) - Above Rs. 5,00,000 up to Rs. 50,00,000 – 75% of the default amount (maximum Rs. 37,50,000)Above Rs. 50,00,000 u - Up to Rs. 2,00,00,000 – 75% of the default amount (maximum Rs. 1,50,00,000) |
Women Entrepreneurs/ MSME from North East Region and Sikkim | 80% of the default amount (maximum Rs. 40,00,000) |
MSE Retail Trade | 50% of default amount (maximum Rs. 50,00,000) |
All other eligible borrowers | 75% of the default amount (maximum Rs. 1,50,00,000) |
Amount of loan
The maximum amount of loan that can be availed by the eligible borrowers under this scheme is Rs. 2,00,00,000.
Rate of Interest
The rate of interest under this scheme is capped at 14% for the lending institution like scheduled commercial banks, selected financial institutions, and 18% in case of NBFCs. These rates are including the cost of guarantee cover.
Annual Guarantee Fee (AGF)
The annual guarantee fees are to be paid by the Member Lending Institutions (MLIs) to validate the guarantee cover extended by the CGTMSE for the specific borrower. The AGF will be raised upon approval of the guarantee cover and will be valid for a period of 1 year from the date the guarantee cover starts. The percentage of AGF to be charged is on the basis of the category of the borrower and then quantum of the credit facility. The details of the same are tabled below.
Quantum of Credit Facility | Annual Guarantee Fees (AGF) | |
Women/Micro Units/Units in North East Region Including Sikkim | Others | |
Up to Rs. 5,00,000 | 0.75% | 1.00% |
Above Rs. 5,00,000 up to RS. 2,00,00,000 | 0.85% | 1.00% |
Tenure
The tenure of the term loans or the composite loans is not fixed and can be anything that is agreed between the lending partner and the borrower. In case where the loan is sought for working capital needs specifically, the tenure can be for a maximum period of 5 years or for a block of 5 years that can be further extended for another block of 5 years upon payment of Annual Guarantee Fees (AGF).
Benefits of CGTMSE
The above highlights of the scheme make it clear that the scheme is very beneficial to the small businesses and serves the purpose of boosting the MSME sector.
One of the main benefits of this scheme is the collateral free loans. This ensures that the borrowers get access to the finances without any need to provide any additional collateral. However, some MLIs can ask for additional security as per their guidelines.
The guarantee cover under the scheme also makes the lenders worry less about the potential NPAs arising out of the collateral free loans and thus provide finance to such MSME units in a more liberal fashion.
The tenure of the loans for working capital can be extended by paying the requisite AGF and this will ensure a smooth functioning of the MSME unit without any hindrances of financial crunch.
The scheme is applicable for new as well as existing MSME units having a valid UAN. This increases the scope of the scheme and enables the cover to be extended to a majority of the small businesses under the MSME sector.
FAQs – CGTMSE
1. Can a borrower take multiple covers under scheme?
Yes, the scheme allows co-financing with the Member Lending Institutions (MLIs) provided the maximum cover allowed per beneficiary does not exceed the permissible limit.
2. What is the guarantee cover for women entrepreneurs under the scheme?
The Guarantee cover for the women entrepreneurs is up to 80% of the credit facility availed by them subject to a maximum of Rs. 40,00,000.
3. What is the interest rate under CGTMSE?
The rate of interest under the scheme is maximum 14% in case of lending institutions and 18% in case of NBFCs.
4. Are the loans under CGTMSE collateral free?
The loans under this scheme are usually collateral free, however, the MLIs can ask for additional security depending on their guidelines.
5. Is UAN a mandatory requirement under CGTMSE?
Yes. According to the revised guidelines, the MLIs have to provide the UAN while submitting the application for guarantee cover to the CGTMSE.