Launched in August 2000 by the Ministry of Micro, Small and Medium Enterprises and Small Industries Development Bank of India (SIDBI) , the Credit Guarantee Fund Trust for Micro and Small Enterprises(CGTMSE) provides guarantee for collateral / third party guarantee free loan upto Rs. 100 lakh to Micro & Small Enterprises –through 96 member lending institutions(MLIs)

A helping hand in difficult times

Set up as a support system to help micro and small enterprises (MSEs) deal with credit access issues, the Credit Guarantee Fund Trust for Micro And Small Enterprises (CGMTSE) has not only continued its work, but has taken steps to ensure credit flows to these enterprises to balance out the effects of the current downturn. Mr OS Vinod, Chief Executive Officer, CGTMSE tells us how and adds a tip for MSEs to tide over these difficult times.

How is the CGTMSE corpus built?

CGTMSE has been set up as a Trust and the corpus is being contributed by the settlors i.e. GoI and SIDBI in the proportion of 4:1, respectively. The committed corpus of the Trust is Rs. 2500 crore. As on March 31, 2009, Rs 1740 cr has been contributed by the settlors. The excess of income over expenditure every year is credited to the existing corpus.

How is CGTMSE lending a hand to MSE to ensure credit flows for them in these times of slowdown?

Cumulatively as on May 31, 2009, 1,60,682 proposals for Rs 5361 crore have been accorded guarantee approval. During the financial year 2008-09, CGTMSE has shown commendable growth in its performance in terms of number and amount of guarantee covers issued under its Credit Guarantee Scheme across India.

CGTMSE has taken following measures to ensure credit flow to MSEs:

Increase in loan amount:The eligible amount under CGS was increased from Rs.50 lakh to Rs.100 lakh for scheduled commercial banks and select financial institutions.

Increase in guarantee cover: The guarantee cover has been increased to 85% for credit facility up to Rs. 5 lakh sanctioned to micro enterprises with effect from January 02, 2009. There is an 80% guarantee cover for credit facility between Rs. 5 lakh to Rs. 50 lakh for MSEs located in the north-eastern region, including Sikkim. The extent of coverage for credit facility for women entrepreneurs has been increased to 80% for credit above Rs. 5 lakh up to Rs. 50 lakh.

Reduction in fees: Guarantee fee (GF) has been reduced to 1% for credit facility up to Rs. 5 lakh. Annual service fee (ASF) reduced to 0.5 for credit facility up to Rs. 5 lakh. A 50% concession in GF for credit facility up to Rs. 50 lakh has been offered for units located in the north-eastern region including Sikkim.

Reduction in lock-in period: The lock-in period for filing of claims by MLIs has been reduced from 24 months earlier to 18 months.

How does CGTMSE benefit the lending institutions? What selection criteria does it have for them?

There are several benefits accruing both to the enterprises as well as the lending institutions. Scheduled commercial banks, select regional rural banks (RRBs) and other lending institutions as approved by Ministry of MSME are eligible to register as MLIs. MLIs benefit from:
Credit facilities guaranteed under the Scheme carry Zero per cent Risk Weight / Provisioning for guaranteed portion.
Time saving: Quicker dispensation of credit due to time saved on security creation / title related issues of collaterals. Reduction in waiting period for recovery through legal process, realizing the time value of money with hassle free and quick recovery of major portion of defaulted amount

What are the main areas of focus for this new financial year for CGTMSE?

CGTMSE is looking at broad basing the number of MLIs and activating those MLIs which are yet to start coverage under the Scheme. Enhancing coverage in regions/states where coverage is low ,upgradation of technology for ensuring seamless operation by MLIs , increasing efficiency / productivity as well as creating greater awareness about the Scheme among entrepreneurs besides sensitizing branch level officials of MLIs about the advantages of CGS.

How can MSEs help themselves to tide over these difficult times?

MSEs should look for new markets and consider diversification into related areas not requiring large capital outlays. Working on keeping costs down, with efficient resource management and lean practices, always helps. Keeping up employee motivation is also important.