Govt Credit Scheme for Micro and Small Enterprises

If you are running a small scale business or planning to establish one, you must be aware that it is very difficult to get credit at reasonable rates from banks as they consider it high-risk to give loans to small firms. Another factor is the collateral requirement that needs to be fulfilled. First-time business owners and micro enterprises are usually most affected.

With this Government of India credit scheme, new as well as existing business owners can avail collateral-free credit for their small or micro-enterprises.

The Ministry of Micro, Small and Medium Enterprises, Government of India and Small Industries Development Bank of India (SIDBI), established a Trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement the Credit Guarantee Fund Scheme for Micro and Small Enterprises .

Launched in 2000, the fund of CGTMSE is contributed by the government and SIDBI in the ratio of 4:1. The information on the scheme was taken for the official website of the Ministry of Micro, Small and Medium Enterprises.

Lending institutions

As of May 31, 2016, there were 133 eligible lending Institutions registered for the scheme. These include As on May 31, 2016, there were 133 eligible Lending Institutions registered as MLIs of the Trust, comprising of Public Sector Banks, Private Sector Banks, Regional Rural Banks (RRBs), 4 Foreign Banks. The 9 other institutions eligible are:

1. Delhi Financial Corporation
2. Kerala Financial Corporation
3. Jammu & Kashmir Development Finance Corporation Ltd
4. Andhra Pradesh State Financial Corporation
5. Export Import Bank of India
6. The Tamil Nadu Industrial Investment Corporation Ltd
7. National Small Industries Corporation (NSIC)
8. North Eastern Development Finance Corporation (NEDFI)
9. Small Industries Development Bank of India (SIDBI)

 

Loan and eligibility details

If eligible under the scheme, the borrowing unit can avail term loans as well as working capital up to Rs.100 lakh, extended without any collateral security and/or third party guarantee, to a new or existing micro and small enterprise.

For those units covered under the guarantee scheme, which may become sick owing to factors beyond the control of management, rehabilitation assistance extended by the lender could also be covered.

Any credit facility in respect of which risks are additionally covered under a scheme, operated by Government or other agencies, will not be eligible for coverage under the scheme.

Guaranteed Cover

The guarantee cover available under the scheme is to the extent of maximum 85% of the sanctioned amount of the credit facility. The guarantee cover provided is up to 75% of the credit facility up to Rs.50 lakh (85% for loans up to Rs. 5 lakh provided to micro enterprises, 80% for MSEs owned/ operated by women and all loans to NER including Sikkim) with a uniform guarantee at 50% for the entire amount if the credit exposure is above Rs.50 lakh and up to Rs.100 lakh.

In case of default, Trust settles the claim up to 75% (or 85% / 80% / 50% wherever applicable) of the amount in default of the credit facility extended by the lending institution. For this purpose the amount in default is reckoned as the principal amount outstanding in the account of the borrower, in respect of term loan, and amount of outstanding working capital facilities, including interest, as on the date of the account turning Non-Performing Asset (NPA).

 

Tenure of guarantee

The guarantee cover under the scheme is for the agreed tenure of the term loan/composite credit. In case of working capital, the guarantee cover is of 5 years or block of 5 years.

Fee for guarantee

A composite all-in annual guarantee fee of 1.0 % per annum of the credit facility sanctioned (0.75 percent for credit facility up to Rs. 5 lakh and 0.85 percent for above Rs. 5 lakh and up to 100 lakh for Women, Micro Enterprises and units in NER including Sikkim) is now being charged.

How to apply for the SME credit scheme?

Latest circulars and details on the scheme are available on the website of CGTMSE at www.cgtmse.in.
CGTMSE has also adopted a multi-channel approach for creating awareness of the CGS amongst banks, MSE industry associations, MSE sector, etc. through print and press media, conducting workshops/seminars, attending the programmes organized at various district/state/national fora, etc.