New Delhi, June 6 (KNN) To make adequate loans available to micro and small enterprises (MSEs), the government has tripled its corpus of credit guarantee scheme to Rs 8,000 crore.

To remove the major deadlock that was stopping the NBFCs from extending loan services to MSEs, the government has allowed non-banking financial companies (NBFCs), along with banks, to avail official guarantees to extend credit to such units, MSME Secretary Arun Kumar Panda told the media.

The corpus of the credit guarantee fund has been raised substantially from Rs 2,500 crore at the behest of Prime Minister Narendra Modi, Panda said.

The government has also decided to raise its guarantee level to 75% of such loans, against 50% earlier, as it intends to enable smoother credit flow to such units, keeping in minds their financial constraints and massive employment generation potential, he added.

Pand said, “With higher guarantee coverage, banks will feel more comfortable to sanction loans to such enterprises.”

Supporting the government decision, the NBFCs that seek guarantees to offer loans to micro and small enterprises will have to lower their interest rates to reasonable levels, as, with government backing, these become very secure loans.

Also, while these loans have been collateral-free, the government now wants to allow banks to seek some collateral from the borrowers, in case they feel the absolute need for it in certain cases.

However, since 85% of the loan is already secured (75% government guarantee and 10% margin money), the need for such collateral will be very minimal and that, too, will be limited to very few cases.

This move has been taken to ensure higher credit flow facility to micro and small enterprises, Panda told.

Incorporating some structural changes in the guarantee fund to make easy credit flow, guarantee corpus is raised substantially, the credit flow may go beyond Rs 40,000-50,000 crore, which was around Rs 19,000-Rs 20,000 crore a year , earlier, said Panda.

The Credit Guarantee Fund Trust for Micro and Small Enterprises will operationalize this scheme. The total loans extended under such guarantees so far have touched Rs 1,40,000 crore, of which the outstanding amount is around Rs 72,000-75,000 crore.