Introduction to Credit Guarantee for MSMEs
Introduction to Credit Guarantee for MSMEs
Bank credit for micro and small enterprises is a lifeline for their businesses. An absolute must, which is enabled with the help of Credit Guarantee Fund Trust for Micro and Small Enterprises (CGFTMSE). Government of India launched the Credit Guarantee Scheme under the management of Ministry of Micro, Small and Medium Enterprises (MSME). The credit guarantee scheme was operationalised when Government of India and Small Industries Development Bank of India (SIDBI) together set up CGTMSE.
The primary purpose of this scheme is to encourage lenders, when they evaluate the loan proposals of SMEs, (a) to give primary importance to the viability of the projects and (b) the security to be primarily the assets that are financed. Further, the lender that is availing the guarantee should be in a position to fund both the term loan and working capital facilities for the MSME. The CGTMSE offers guarantee in the range of 75% to 85% of the credit facility.
It is pertinent to mention here that the lender that needs the guarantee should be in the approved list of lenders with CGTMSE. The list of approved lenders is here:
http://www.cgtmse.in/List_Of_MLIs.aspx
Guarantee can be provided for new and existing MSMEs and also service enterprises. The maximum credit cap is Rs.1 crores.
The maximum guarantee cover is Rs. 65 lacs (Rs. 6.5 million). For micro enterprises, the extent of guarantee cover is 85% and for credit upto Rs. 5 lacs (Rs. 0.5 million).
For women-owned micro and small enterprises and for credits given in the North Eastern Region, the guarantee cover available is 80%.
The lender should cover the eligible facilities under the guarantee, immediately after the loan is sanctioned. It works on a calendarised schedule, whereby the lender applies for guarantee cover in respect of eligible credits in one calendar quarter, latest by the end of the next calendar quarter. The commencement of guarantee would happen from the date the guarantee fee is paid by the lender. The guarantee will run through the full agreed tenure for term loans and for upto 5 years in case of working capital facilities.
The purpose of this note was to give a quick information and overview of the fact that such a facility is available for MSMEs.
For any additional information with respect to benefits available for SMEs please write to us at [email protected] or leave your query at Contact Us Page.
