The CGTMSE Scheme, or the Credit Guarantee Fund Scheme for Micro & Small Enterprises, was introduced by the Government of India (GoI) to make collateral-free credit to the MSE sector. Both the existing & new enterprises are eligible to be covered under the CGTMSE Scheme. The Ministry of MSME, Government of India and Small Industries Development Bank of India (SIDBI), established a Trust named CGTMSE to implement the Credit Guarantee Fund Scheme for Micro & Small Enterprises. Scroll down to check more information regarding CGTMSE Scheme.
CGTMSE – Meaning
The overall idea behind this is to provide financial assistance to these industries without any 3rd party guarantee or collateral. These schemes give the assurance to the lenders that in case of default by them, a guarantee cover will be given by Trust in the ratio of 50 or 75 or 80 or 85% of the amount so given.
Following are the objectives of the CGTMSE Scheme:
- To give loans and composite credit schemes;
- To check the financial feasibility of the project of these companies.
According to this scheme, a loan of up to Rs. 200 lakhs can be provided to MSMEs. A special preference is provided to the women entrepreneurs who are eligible for this scheme. Loans are given to borrowers also who are located in the Northeastern states of India, such as Jammu & Kashmir and Sikkim.
Who can avail of the CGTMSE Fund?
Following are the enterprises which are eligible for this scheme:
- Manufacturing activity.
- Service activity, except:
- Retail Trade;
- Training Institutions;
- Self Help Groups;
- Educational institutions.
Note: It’s now available for selected NBFCs also.
Banks Associated with the CGTMSE Scheme
- NABARD has categorised some Regional Rural Banks under the Sustainable Viable category. These banks can act as an Eligible Bankers;
- Scheduled Commercial Banks, which may be either a Foreign Bank or Private or Public Sector;
- There are around 133 eligible lending institutions registered as MLIs of the Trust, which comprises:
- Delhi Financial Corporation;
- NSIC or National Small Industries Corporation, NEDFI or North Eastern Development Finance Corporation;
- Kerala Financial Corporation;
- Export-Import Bank of India;
- SIDBI;
- The Tamil Nadu Industrial Investment Corporation Limited;
- 21 Private Sector Banks;
- 4 Foreign Banks;
- 26 Public Sector Banks;
- 73 Regional Rural Banks;
- J&K Development Finance Corporation Ltd.
Eligibility Criteria for CGTMSE Scheme
According to the CGTMSE guidelines, a credit guarantee is considered to back a borrower with collateral & 3rd party guarantees free advance. Under this scheme, the member lending institution, which can be an NBFC also, that lends to the MSME & SME sector is eligible for a Maximum Credit Cap (MCC) of Rs. 2 crores, which in any instance is meant to cover a large proportion of the loan amount. The eligibility norms prescribed to both the borrowers and credit providers are:
- Lending Borrowers: The CGTMSE Scheme coverage is conditional to all new & existing Small and Medium Enterprises:
- For credit facilities, more than Rs. 50 lakhs, the guarantee cap is only limited to Rs. 1 crore;
- The maximum credit facility is Rs. 50 lakhs for a guarantee cover not more than Rs. 62.50 lakhs or Rs. 65 lakhs;
- Term credit for the overall outstanding amount on the date the loan is declared to be an NPA or on the filing date of a suit.
- Lending Institutions: It covers the whole range of scheduled commercial banks, specified NSIC, SFB, Regional Rural Banks, NEDFi, SIDBI, and NBFCs who lend to the specific sector & have entered into an agreement with CGTMSE/the Trust for the purpose. These are designated as MLIs or Member Lending Institutions and number 131 at present.
Documents Required for CGTMSE Loan Process
Availing of a credit facility/loan from the lender involves a series of activities on the borrower’s part for a seamless experience. The primary steps for the CGTMSE Loan Scheme can be presented as under:
- Set Up Business Entity: The units have to be incorporated a unique business enterprise in the appropriate category like Partnership, Proprietorship, or a Limited Company and necessary approvals, certificates & Tax Registrations are need to be attained to execute the project.
- Business Project Report: The project’s component should be well-defined based on detailed market analysis and study. The factors to be mandatorily covered are:
- Promoter Profile;
- Business Model;
- Cost & other financials.
- Submission: The project report and the loan application form are to be submitted to the lender for further processing. If the homework is proper, the 1st step towards successful completion of the process is taken.
- CGTMSE Scheme Banks Sanction: Once the application forms are submitted, the processing starts. After proper evaluation & gauging of the feasibility of the project, the sanction is accorded in alignment with the policy of the lender.
- Obtaining CGTMSE Loan Cover: After sanctioning the loan, it’s the responsibility of the lender to file for guarantee cover at the CGTMSE.
Procedure to Opt for CGTMSE Scheme
- The first step to avail of this scheme is to prepare a proper Business Plan comprising all the details, financial & otherwise. The business model must be such that it explains the project’s viability.
- After the business model is constructed, the decision of which lender bank to approach is to be taken. Once that is completed, the application along with the business model is to be submitted to the bank.
- The bank will examine and verify all the details of the application & the model of the project so submitted.
- After verification, the bank will further send the application to the CGTMSE Scheme Fund, where the application will be examined again. It is approved, the fund will educate the bank to release funds for the business.
Fees charged by the CGTMSE
The fees charged by the trust fund are 1% per annum of the amount so sanctioned:
- 0.75% for credit of up to Rs. 5 lakhs;
- 0.85% for credit above Rs. 5 lakhs but up to Rs. 100 lakh.
The credit guarantee available under CGTMSE Scheme is 75 or 80% of the amount, so given to a maximum cap of Rs. 62.5 lakh or 65 lakh for a credit facility of up to Rs. 50 lakhs. The percentage guarantee is 85% for micro-enterprises for a total of up to Rs. 5 lakhs. The percentage guarantee (%) is 50% of the amount so sanctioned for a credit of above Rs. 50 lakhs with an upper limit of Rs. 100 lakhs. The tenure of the guarantee is a block of five years.
Conclusion
New and existing Micro & Small Enterprises[1] that are involved in service or manufacturing activities are eligible for guarantee cover under the CGTMSE Schemes. It should be noted that enterprises involved in educational institutions, SHGs, and retail trade are not eligible under the schemes.
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