MSEs in India face a number of issues, the most pertinent one being unavailability of adequate and timely credit at a reasonable rate of interest. With rising competition due to liberalization of the economy, the survival and growth of the MSE units are critically dependent on their modernization and technological up-gradation which requires funding. The problem is more pressing for micro enterprises requiring small loans and for the first generation entrepreneurs. It is believed by the banks and other financial institutions that there is a high risk attached with these Enterprises in granting them credit.
What is Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)?
In view of these problems, The Ministry of Micro, Small and Medium Enterprise (Ministry) launched the Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGS) on August 30, 2000 to make available collateral-free credit to the micro and small enterprise sector. The Ministry, the Indian Government, and Small Industries Development Bank of India (SIDBI), established a Trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement the CGS. The funding to this scheme is contributed by the Indian Government and SIDBI in the ratio of 4:1 respectively.
What is the benefit of these schemes?
On the other hand, the CGTMSE scheme not only grants credit up to Rs.1 crore, but it does so without asking for a third-party guarantee or collateral security. Furthermore, the CGTMSE scheme provides a credit guarantee, liberating entrepreneurs from the burden of repaying the loan, if by any chance their business fails. If a project fails, and the borrower cannot repay the loan, the CGTMSE scheme will directly pay the outstanding loan amount to the lending institution to compensate for the monetary loss they suffered due to non-repayment of the loan. The quantum of the credit guarantee, or credit cover, varies between 50 percent and 85 percent of the loan amount, depending on a range of factors, including the gender, industry type, the purpose, and the amount of loan.
Who will benefit from these schemes?
Any registered enterprise, with a workable business idea, can avail these schemes, which is open for both new and existing businesses. These Enterprises may be sole proprietorships, partnerships, Cooperative and societies, private limited / LLP companies in the sector. The MSEs must also have a valid UAN at the time of application implying that they are duly registered as MSEs under MSMED Act, 2006. These schemes give priority to people from the SC/ST community, women entrepreneurs and entrepreneurs from NER, Hill states, island territories, and LWE Districts.
How to apply for these schemes?
To cover the loan under the CGTMSE scheme, the borrower must pay an additional guarantee fee and service charge in addition to the interest charged by the bank. Current CGTMSE fee is payable at the rate of 1.5% (for the North Eastern region including the state of Sikkim, it is payable at 0.75%). The borrowers then need to conduct a market analysis and prepare a business plan containing relevant information like their business model, promoter profile, projected financials, etc. This report can be presented to the credit facility and an application can be filed for getting the loan under this scheme. However, businesses should consider getting these reports prepared by experienced professionals as it increases the chances of approval. The request for bank loan usually contains credit term and working capital facilities. After the application and business plan are under process, banks carefully analyses the viability of business model and process the loan application and accord sanction, as per their policy. After the loan is sanctioned, the bank must apply to CGTMSE authority and obtain a guarantee cover. If the loan is approved by CGTMSE, the borrower will have to pay the guarantee fee and service charges. The CGTMSE loan application form can be downloaded from its official website.
Eligible Lending Institutions:
For CGTMSE, all scheduled commercial banks, whether public, private or foreign and select Regional Rural Banks (which have been classified under 'Sustainable Viable' category by NABARD), are eligible lending institutions. Until 2014, there were in total 133 eligible Lending Institutions registered, comprising of 26 Public Sector Banks, 21 Private Sector Banks, 73 Regional Rural Banks (RRBs), 4 Foreign Banks and 9 other institutions.
Scheme Awareness Programmes:
The Ministry has implemented various programmes for the promotion and development of MSEs throughout the country including programmes like Atmanirbhar Bharath, Liquidity management & Structuring of Organization, Institutional Support for Agri-entrepreneurship Development, Intellectual Property Management in International Business Scenario, to name a few. Sustained print media campaigns were carried out across the country throughout the year to improve visibility and create awareness about the scheme. Information dissemination campaigns were vigorously carried out amongst various stakeholders. CGTMSE adopted a multi-channel approach for creating awareness of the CGS amongst banks, MSE industry associations, MSE sector, etc. through print and press media, conducting workshops and seminars, attending the programmes organized at various district / state / national fora, etc.
There are over 11 crore workers employed under MSMEs and they alone contribute towards 29% of India’s GDP and comprise almost half of its exports. The Indian Government has substantially invested in providing more back-end services to improve performance of the MSME segment which in turn are suppliers for big industrial houses. This sector, which earlier suffered from lack of credit and technology-based production activities, is now heavily subsidised by the government through various schemes in place by the Ministry alone.
