New Delhi, Jan 27 (KNN) To combat slowdown which has tightly gripped the economy including the micro, small and medium enterprises (MSMEs) of the country, the Ministry of MSME has made two crucial changes in the Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGTMSE). Firstly, the micro and small enterprises (MSEs) seeking collateral free loan under CGTMSE can now take a top up and secondly the collateral free loans under CGTMSE can now be taken for the second time as well by the MSEs which was not the case earlier.

There is a high risk perception amongst lenders while giving loans to MSMEs which leads to banks insisting on collateral security.

Difficulty for MSEs in getting security, led the Government of India (GoI) to launch the Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGS) to make available collateral-free credit to micro and small businesses.

About the Scheme:

The MSME Ministry and Small Industries Development Bank of India (SIDBI) established the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) in 2000 to implement the Credit Guarantee Fund Scheme. The corpus of CGTMSE is contributed by the GoI and SIDBI in the ratio of 4:1 respectively.

Under the scheme, collateral-free credit (fund and non-fund-based) extended by eligible financial institutions to new and existing micro and small enterprises, up to a limit of Rs 200 lakh (Rs 2 crore), are eligible to be covered by the fund trust.

Lending Institutions:

The financial institutions eligible to lend under the scheme are scheduled commercial banks such as public sector banks, private sector banks, foreign banks, and select regional rural banks (which have been classified under 'sustainable viable' category by National Bank for Agriculture and Rural Development). NBFCs and Small Finance Banks also recently became eligible.

Some eligible lending institutions are Delhi Financial Corporation, Kerala Financial Corporation, Jammu & 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).

CGTMSE has also introduced a Hybrid Security product where lending institutions will be allowed to obtain collateral for a part of the credit facility.

In such cases, CGTMSE will have equal charge on primary security as well as on collateral security provided by the borrower.

Guarantee coverage

The trust fund generated by the CGTMSE provides several benefits and works on the features mentioned herewith

   -- 1. Funds and assistance is provided up to Rs 200 lakh with security free and third party assurance is not mandatory.
   -- 2. For majority enterprises trust covers 75% to 85% credit amount as hybrid security in case of default
   -- 3. For Retail Trade Enterprises 50% guarantee is provided loan amount exceeding Rs 50 lakhs up to 100 lakhs.
   -- 4. On the contrary, if the amount is less than Rs 5 lakhs, 85% guarantee is assured.
   -- 5. The loans provided to MSMEs driven by women and in the Northeast Regions are given a special category. Maximum guarantee under CGTMSE under this category equals to 80%.