To address the problem of MSEs in access to institutional credit in the absence of collateral security and/or third party guarantee, Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) was established in August, 2000 with Government of India and Small Industries Development Bank of India (SIDBI) with an initial contribution of Rs.125 crore in the ratio of 4:1. The corpus has since been enhanced to Rs.1,804 crore as on date as against the committed corpus of Rs.2,500 crore.

 

 

Under the scheme, Credit Facility up to Rs.100 lakh extended to eligible MSEs by its Member Lending Institutions (MLIs) is guaranteed by the Trust. The extent of guarantee cover ranges from 75% to 85% of Amount in Default. Credit extended to Micro Enterprises with limits upto Rs.5 lakh are covered to the extent of 85%, while credit extended to Women Entrepreneurs and units located in the North East Region are eligible for guarantee cover of 80%. 

 

CGTMSE CEO O.S.Vinod talked to SME WORLD recently.

 

We understand CGTMSE has met the target, for the year, in affording credit guarantee to 50,000 enterprises. On what basis the target was set?  

 

The MSE sector is a very large sector and contributes significantly to overall GDP of the country. All MSEs may not require institutional financing and may be managing with their own funds or through borrowings from friends and relatives for small sized loans. Under Credit Guarantee Scheme (CGS), entrepreneurs who do not have collateral security and / or third party guarantee to offer can obtain loans from banks which will be guaranteed by the Trust.  It would not be possible for any institution to cover 100% of the requirement of the MSE sector loans, keeping in view the transaction process, logistics and other factors. Secondly, the concept of collateral free and /or third party guarantee free lending based on cash flows of the enterprise is gaining steady acceptance among the banks and lending institutions. Based on level of past coverage under CGS, it was thought fit to increase the coverage over FY08 significantly and a target of 50,000 proposals was set for FY 09, which was a 77.34% growth over the achievement in FY08. In FY 2010, it is proposed to double the coverage to 1 lakh guarantees. 

 

The Trust has more than 100 MLIs which are lending funds to enterprises. Kindly tell us briefly the basic procedure for extending the credit guarantee scheme to the seeking units. 

 

As on date, there are 97 MLIs registered with the Trust.  The Reserve Bank of India has issued guidelines on August 24, 2009 making it mandatory for all scheduled commercial banks including RRBs and Local Area Banks not to obtain collateral security in case of loans upto Rs 5 lakh extended to units in the  MSE sector. For all collateral free and third party guarantee free loans upto Rs100 lakh per borrower in the MSE sector, the bank concerned does the due diligence and appraisal of the project and after satisfying itself about the technical and financial viability of the project, it sanctions the loan. Thereafter, it approaches CGTMSE for guarantee cover to ensure that in case of default by the borrower, the bank is protected upto a maximum of 85% of the net loss. Under Credit Guarantee Scheme of CGTMSE loans upto Rs 5 lakh to micro enterprises is guaranteed upto 85% of the amount in default while it is 80% for women entrepreneurs and units in North East Region for loans upto Rs 50 lakh. For all other category of entrepreneurs it is 75% upto Rs 50 lakh. For loans above Rs 50 lakh and upto Rs 100 lakh the guarantee is as applicable for the first Rs 50 lakh plus for the incremental amount beyond Rs 50 lakh to Rs 100 lakh, the guarantee cover is 50%.

 

MLIs are the basic selector for units availing the finds. Loans sanctioned to MSE entrepreneurs for start ups, expansion, modernisation, diversification etc are eligible for coverage under the Credit Guarantee Scheme provided the proposal meets the stipulated condition for sanction of loan by the sanctioning banks/Member Lending Institutions (MLIs) and the loans are extended without any collateral security or third party guarantee.  

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