Collateral Free Loans Under CGTMSE Scheme
MSMEs or Micro, Small and Medium Enterprises form the backbone of an economy. In India, MSMEs have been picking up pace for past few years now. Though while acknowledging the significance of small businesses, banks do hesitate in extending loans to the first generation entrepreneurs.
Owing to the inability of providing adequate collateral security against loans, micro and small enterprise owners face hurdles in having access to bank credit. Taking this into account, the government introduced the Credit Guarantee Fund Scheme for Small Industries on 30th August, 2000. The objective of this scheme was to reduce the problem of collateral security. It also targeted at lowering the hindrances to credit flow to Micro and Small Scale Industries (SSI) sector.
Credit Guarantee Fund Scheme for Small Industries (CGFSS)
On 19th May, 2000, the Credit Guarantee Fund Scheme for Small Industries (CGFSS) got approved by the government. This scheme aimed at providing credit to SSI units (Small Scale Industries) without collateral or third party guarantees. Currently, under this scheme, SSIs can avail loan up to Rs. 100 lakhs.
CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises)
A Trust named CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) was set up by the Ministry of Micro, Small and Medium Enterprises and SIDBI (Small Industries Development Bank of India). This trust was formed in order to execute the Credit Guarantee Fund Scheme for Micro and Small Enterprises. The scheme was officially launched on August 30, 2000, and it came into effect from 1st January, 2001.
Eligible Lending Institutions
The institutions, which are eligible under the scheme include public sector banks, private sector banks, foreign banks, and regional rural banks. NABARD (National Bank for Agriculture and Rural Development) has classified regional rural banks under 'Sustainable Viable' category. At present, there are 112 eligible lending Institutions that have been registered with the Trust. These lending institutions are enlisted below:
- 27 Public Sector Banks
- 16 Private Sector Banks
- 61 Regional Rural Banks
- 2 Foreign Banks
- NSIC (National Small Industries Corporation)
- NEDFi (North Eastern Development Finance Corporation Ltd)
- SIDBI (Small Industries Development Bank of India)
- TNIIC (The Tamil Nadu Industrial Investment Corporation)
Eligible Credit Facility
Under the scheme, a small or medium business unit can avail both term loan and working capital up to Rs.100 lakh. The loan amount can be extended without any third party guarantee or collateral security. It is worth-mentioning that if the credit facility exceeds Rs.50 lakh it may still be covered under the scheme but the guarantee cover will be extended for credit assistance of Rs.50 lakh only. Another important requirement under the scheme is that the credit facility should be availed by the borrowing unit from a single lending institution.
Under the scheme, the guarantee cover can be availed up to 75 percent of the approved amount of the credit facility. For micro enterprises with loan up to Rs.5 lakh, the extent of guarantee cover is 80 percent. Besides, for MSEs owned by women and loans in the north-east region, the guarantee cover is 80 percent. Under this scheme, a working capital has a guarantee cover for 5 years.
Under the scheme, an enterprise owner have to pay a one-time guarantee fee of 1.5% and annual service fee of 0.75% on the credit facilities sanctioned. The one-time guarantee fee and annual service fee is 1% and 0.5% respectively for loans up to Rs.5 lakh. Likewise, the one-time guarantee fee is only 0.75% for loans in the North-East Region.