The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), a venture between the central government and the Sidbi, and Indian Overseas bank (IOB) have inked an memorandum of understanding under the risk-sharing facility scheme for guaranteeing collateral-free credit facilities to the small scale units.
Under the scheme, collateral free and/or third party Guarantee-free credit facilities over Rs 1 crore to Rs 2 crore sanctioned to eligible micro and small enterprises, are proposed to be guaranteed through select member-lending institutions of CGTMSE.
S Muhnot, CGTMSE Chairman and Sidbi Chairman & Managing Director said, "We have signed the pact with IOB because they are quite aggressive on the MSME sector. In the last three years they have seen 110 per cent increases in the coverage area. So we think they are the best bank for this scheme."
This is an initiative that enables banks to take up MSE financing as a viable and profitable business model, by sharing the credit risk of participating banks, apart from making participation contingent on better credit assessment and risk identification by banks, he said.
A credit guarantee acts as a counter-cyclical intervention when NPAs rise and during such times, the first step that banks do to keep off the MSME sector, he said.