CGTMSE Scheme Empowering Indian MSME

The Indian industrial landscape is tightly woven by the Micro, Small and Medium Enterprises. These MSMEs prove to be a crucial part of the nation’s industrial ecosystem as they significantly contribute to the employment, innovation and economic growth of the nation. As an MSME business owner, it becomes challenging to arrange for funds to meet the credit and financial requirements of the business. Considering these entrepreneurial hurdles, be it for the aspiring entrepreneurs or the established MSMEs, Government of India introduces various schemes and grants to provide financial assistance to the MSMEs. One such scheme is Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), wherein the government offers credit guarantees to the financial institutions providing loans to MSEs- Micro and Small Enterprises.

Inception of CGTMSE

The CGTMSE scheme was launched by the Government of India in the year 2000. The scheme was set up under The Ministry of Micro, Small and Medium Enterprises (MoMSME) and Small Industrial Development Bank of India (SIDBI). It is defined as a credit guarantee program designed to facilitate collateral-free loans to MSMEs by providing the much-needed safety net to the lending parties. Through the scheme there will be less burden to fulfil the collateral requirements which often acts as a limiting factor for the entrepreneurs. This is faced especially by those from the under-privileged backgrounds or someone with limited resources to start or continue their entrepreneurial journey.

The Need of CGTMSE

The birth of the CGTMSE scheme was crucial as the MSMEs are the driving force that elevates the nation’s economic growth and is responsible for widely generating employment opportunities. This scheme was introduced to bridge the gap of offering collateral to the formal credit channels to avail credit. The aim of the scheme is to empower the MSMEs to unleash their full potential and drive the growth of the economy multi-fold.

How does the CGTMSE scheme work?

The working of the scheme is straightforward yet impactful. Under this program, the Trust provides a credit guarantee to lending institutions, covering a substantial portion of the loan amount extended to eligible MSMEs. This guarantee serves as a risk-sharing mechanism, mitigating the lenders’ apprehensions and encouraging them to extend credit facilities to MSMEs without the need for traditional collateral. In simpler terms, the government offers a guarantee without the need of any third-party guarantor to back the applicant’s loan. The scheme’s primary objective remains to create a credit relief system such that it promotes improved and smooth credit flow among the MSMEs sector.

The scheme covers loans up to ₹5 crores extended by participating lending institutions. The lenders includes scheduled commercial banks, regional rural banks, and select Non-Banking Financial Companies (NBFCs). This broad coverage ensures that the scheme’s benefits can be availed across various sectors, regions, and business scales, promoting an environment of equal opportunities.

Any Existing or Newly-formed Micro and Small Enterprises (MSEs) are eligible to borrow through this scheme.

Eligible Activities

If your business falls within the manufacturing and service-based category, including retail trade, then you are eligible to avail benefits under the CGTMSE scheme. Some businesses that aren’t covered under the purview of the scheme include, Self-help groups, Agricultural activities, along with Educational and Training Institutions.

Loan Amount

If you are a MSE owner, you can avail the credit guarantee facility of up to INR 5 crores. On the other hand, the Regional Rural Banks and other select Financial Institutions can offer this facility limited to INR 50 Lakhs.

Guarantee Coverage

If you are someone eligible to the benefits of the CGTMSE scheme, you can avail up to 75 – 85 % repayment of the principal amount in the scenario of you making a default. It is to be noted here that this shall hold true only in case your principal amount is up to INR 50 Lakhs.

Requirement of a Collateral

Being covered under the CGTMSE makes you immune to provide any collateral or external or third-party guarantees.

Who are the Lending Institutions under the CGTMSE scheme?

• Scheduled Commercial Banks (SCBs)
• Regional Rural Banks (RRBs)
• Non-Banking Financial Companies (NBFCs)
• Small Financial Banks (SFBs)
• North Eastern Development Finance Corporation Ltd (NEDFi)
• Small Industrial Development Bank of India (SIDBI)
• National Small Industries Corporation (NSIC)

What documents will I need to apply for the loan under the CGTMSE Scheme?

• The CGTMSE loan application form, duly filled
• Passport-sized photographs
• Company Registration or Business Incorporation Certificate
• Business Project Report
• Loan Coverage Letter under CGTMSE
• The Loan Approval copy as provided by the bank
• Any other document as required by the bank

The Annual Guarantee Fee (AGF)

For the credit facility sanctioned or renewed on or after April 1^st 2023, there will be an Annual Guarantee Fee charged in the amount guaranteed for the first year and the outstanding amount for the remaining period of the credit facility.

Slab	Standard Rate (SR)	Fee Rate after Discount	Fee Rate with Risk Premium
		(-10%)	15%	30%	50%	70%
0 – 10 Lakhs	0.37	0.33	0.43	0.48	0.56	0.63
Above 10-50 lakh	0.55	0.50	0.63	0.72	0.83	0.94
Above 50-1 crore	0.60	0.54	0.69	0.78	0.90	1.02
Above 1-2 crore	1.20	1.08	1.38	1.56	1.80	2.04
Above 2-5 crore	1.35	1.22	1.55	1.76	2.03	2.30

Like any comprehensive program, the CGTMSE scheme is not without its challenges. One of the primary concerns raised by the stakeholders is the need for increased awareness and outreach efforts. While the scheme has gathered appreciation, there remains a significant portion of the MSME community, particularly in remote and rural areas, that may not be fully aware of its benefits and eligibility criteria.

As the MSME sector continues to evolve and adapt to the ever-changing business landscape in the Indian economy, the CGTMSE scheme remains a vital pillar of support, nurturing an environment favourable for entrepreneurship and ensuring that the entrepreneurial spirit in India continues to thrive.

Reference: https://www.cgtmse.in/