Credit Guarantee Fund Scheme

The Credit Guarantee Fund Scheme relating to the Micro and Small Enterprises (CGS) has been established by the Government of India in order to make available collateral-free credit towards the micro and small enterprise sector. Also both the existing as well as the new enterprises are eligible to be covered under the scheme. The Ministry of Micro, Small and Medium Enterprises, Government of India and Small Industries Development Bank of India (SIDBI), had set up a Trust called Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) towards implementing the Credit Guarantee Fund Scheme for Micro and Small Enterprises. 

This scheme has been launched on 30th August 2000, and the main aim of the scheme is to provide credit guarantee towards financial institutions that give loans to SMEs and MSMEs.
Credit Guarantee Fund Scheme intends to encourage businesspersons in order to take collateral-free loans for beginning businesses without the fear of default. The trust fund would reimburse the lending institution up to some limit if the borrower defaults.
 

Eligibility of the Credit Guarantee Fund Scheme:
 

The Credit Guarantee Fund Scheme is available for the new as well as already existing Micro and Small Enterprises who are engaged in manufacturing or service activity which excludes Educational Institutions, Agriculture, Self Help Groups, Training Institutions and so forth.

Credit Guarantee Fund Scheme Benefits: 
 

•    The Fund and non-fund based (Letters of Credit, Bank Guarantee etc.) credit provides up to Rs 200 lakh per entitled borrower who are covered under the guarantee scheme considering that they are extended on the project feasibility without collateral security or third party guarantee.
 

•    The guarantee cover which is available under the scheme is towards the extent of 50%/ 75% / 80% and 85% of the sanctioned sum of the credit facility. The extent of guarantee cover is 85% for micro-entities for credit up to Rs 5 lakh. The extent of guarantee cover is 50% of the sanctioned sum of the credit facility for credit from Rs 10 lakh to Rs 100 lakh per MSE borrower relating to the retail trade activity.
 

•    The extent of guarantee cover is 80% for Micro and Small Enterprises which is operated and/or owned by women; and all credits or loans in the North East Region relating to the credit facilities which is up to Rs 50 lakh. If there is a default, Trust resolves the claim up to 75% of the sum in default of the credit facility extended through the lending institution for credit facilities up to Rs 200 lakh.

Process:

The Banks or Financial Institutions, which are entitled under the Credit Guarantee Fund Scheme, are organized commercial banks (Public Sector Banks/Private Sector Banks/Foreign Banks) as well as select Regional Rural Banks (which was categorized under 'Sustainable Viable' category through NABARD). However, from 31st May 2016, there has been 133 eligible Lending Institutions that are registered as MLIs of the Trust, including 26 Public Sector Banks, 21 Private Sector Banks, 73 Regional Rural Banks (RRBs), 4 Foreign Banks as well as 9 other institutions that are;
 

•    Delhi Financial Corporation, 
 

•    Kerala Financial Corporation,
 

•    Jammu and Kashmir Development Finance Corporation Ltd, 
 

•    Andhra Pradesh State Financial Corporation,
 

•    Export-Import Bank of India, 
 

•    The Tamil Nadu Industrial Investment Corporation Ltd
 

•    National Small Industries Corporation (NSIC), 
 

•    North Eastern Development Finance Corporation (NEDFI) and 
 

•    Small Industries Development Bank of India (SIDBI).

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Author:

eStartIndia Team