January 17, 2023
Jasmine John

All You Need To Know About The CGTMSE Scheme

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) was established jointly by the Ministry of Micro, Small, and Medium Enterprises (MSME), the Government of India, and the Small Industries Development Bank of India (SIDBI) to facilitate the flow of institutional credit to Micro and Small Enterprises (MSEs). The Credit Guarantee Scheme (CGS) was created to improve the credit delivery system and promote credit flow to the MSE sector, create access to financing for the unserved, under-served, and underprivileged, and make funding available from traditional lenders to new-generation entrepreneurs. CGTMSE has been crucial in providing guarantee protection to collateral and/or third-party guarantee-free loan facilities given to MSEs by qualifying Member Lending Institutions [MLIs] over the past 20 years. This scheme is applicable to current entrepreneurs and aspirant entrepreneurs.

What Is The Objective Of CGTMSE?

To the first generation of entrepreneurs, the availability of bank loans without the hassles of collateral or third-party guarantees would be a vital source of help in realizing their dream of founding a Micro and Small Enterprise (MSE). In order to strengthen the credit delivery system and facilitate the flow of credit to the MSE sector, the Ministry of Micro, Small & Medium Enterprises (MSME), Government of India, developed the Credit Guarantee Scheme (CGS) with this goal in mind. The Credit Guarantee Fund Trust for Micro and Small Enterprises was established by the Government of India and SIDBI to make the program operational (CGTMSE).

A new "Hybrid Security" solution from CGTMSE enables guarantee coverage for the portion of the credit facility that is not covered by collateral security. The MLIs would be permitted to seek collateral security for a portion of the credit facility under the partial collateral security model, while the remaining portion of the credit facility, up to a maximum of 200 lakh, can be covered under the Credit Guarantee Scheme of CGTMSE. On both the primary security and the collateral security given by the borrower for the credit facility, CGTMSE will, however, have a pari-passu fee.

The main goal is for the lender to prioritize project viability and secure the credit facility solely on the primary security of the assets financed. The lender providing the guarantee should also make an effort to provide composite credit to the borrowers so that they can obtain both term loans and working capital from a single agency. The Credit Guarantee Scheme (CGS) seeks to reassure lenders that if an MSE unit that received collateral-free credit fails to discharge its liabilities to the lender, the Guarantee Trust will make good the lender's loss up to 50/75/80/85 percent of the credit facility.

Credit Guarantee

Any collateral / third party guarantee free credit facility (both fund and non-fund based) granted by qualifying institutions to new and existing Micro and Small companies, including Service Enterprises, with a credit cap of 200 lakh (Rupees two hundred lakh only) is eligible for coverage. Guarantee coverage was recently extended to some NBFCs and Small Finance Banks.

The scheme provides guaranteed coverage up to 50%, 75%, 80%, and 85% of the credit facility's sanctioned amount. For micro-enterprises with credit up to 5 lakhs, the guarantee cover is 85%. The extent of guarantee cover is 50% of the credit facility sanctioned amount for a credit ranging from 10 lakh to 100 lakh per MSE borrower for retail trade activity.

Guarantee coverage is 80% for

1. Micro and Small Enterprises operated and/or owned by women, and 

2. All credits/loans in the North East Region (NER) for credit facilities up to 50 lakh. In the event of a default, the Trust will settle the claim up to 75% of the amount in default of the credit facility issued by the lending institution for credit facilities up to Rs. 200 lakhs.

As soon as the qualified credit facilities are sanctioned, the lender should cover them. In any instance, the lender should apply for guarantee insurance for qualifying credits sanctioned in one calendar quarter no later than the end of the next calendar quarter. The guarantee will begin on the date of payment of the guarantee fee and will continue for the agreed tenure of the term credit in the case of term loans / composite loans and for a duration of five years where working capital amenities alone are extended to borrowers, or for such timespan as the Guarantee Trust may specify in this regard.

Key Benefits

1. Credit guarantee for loans up to INR 2 crores, without third-party guarantee or collateral.

2. Coverage guarantees range from 75% (others) to 85%. (Micro Enterprise up to INR 5 lakh).

3. Retail activity receives 50% of the coverage.

The Scheme Aims At Motivating First-Generation Entrepreneurs 

The scheme aims at motivating first-generation entrepreneurs towards self-employment by providing credit guarantee funding for third-party guarantee-free / collateral-free loans.

It is the main aim of CGTMSE to provide the appropriate funding and support to first-generation entrepreneurs to motivate and stimulate self-employment and contribute to the country's poverty reduction and economic development. They do this by providing credit guarantee funding for third-party guarantee-free loans. These are loans not backed by any collateral or guarantor, making it much easier to get a loan for small businesses, who otherwise would not qualify for a loan.


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