Collateral Free Loans Under CGTMSE Scheme

Credit Guarantee Fund Scheme

 

Micro and Small Enterprises, particularly the first generation of entrepreneurs, face difficulties in accessing bank credit because of their inability to provide adequate collateral security for loans. Considering this, the Government launched the Credit Guarantee Fund Scheme for Small Industries on 30th August, 2000 with a view to alleviating the problem of collateral security and impediment to flow of credit to Micro and Small Scale Industries (SSI) sector.

The Government approved the Credit Guarantee Fund Scheme for Small Industries on 19th May, 2000 with the objective of making available credit to SSI units, particularly tiny units, for loans up to Rs. 10 lakhs without collateral/third party guarantees (This is at present applicable for loans upto Rs 100 lakhs).

The Ministry of Micro, Small and Medium Enterprises 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 Credit Guarantee Fund Scheme for Micro and Small Enterprises. The scheme was formally launched on August 30, 2000 and is operational with effect from 1st January, 2001. The main objective is that the lender should give importance to project viability and secure the credit facility purely on the primary security of the assets financed. The other objective is that the lender availing guarantee facility should endeavor to give composite credit to the borrowers so that the borrowers obtain both term loan and working capital facilities from a single agency.

The Credit Guarantee scheme (CGS) seeks to reassure the lender that, in the event of a MSE unit, which availed collateral free credit facilities, fails to discharge its liabilities to the lender, the Guarantee Trust would make good the loss incurred by the lender up to 75 / 80/ 85 per cent of the credit facility.

Since the formation of the Trust, there has been a substantial growth in the number of proposals and credit amount disbursed under the scheme. The following table provides the operational highlights of CGTMSE since FY01.

Credit Growth under CGTMSE Scheme

Period

Number of Proposals Approved

Credit Amount Approved (Rs. in Lakh)

FY 2000-01

FY 2001-02

FY 2002-03

FY 2003-04

FY 2004-05

FY 2005-06

FY 2006-07

FY 2007-08*

FY 2008-09*

FY 2009-10*

951

2,296

4,955

6,603

9,516

16,284

27,457

30,825

53,708

151,387

606

2,952

5,867

11,760

32,677

46,191

70,453

105,584

219,940

687,511

Source: DC (MSME)

To get further details on the scheme, eligibility criteria, fees, etc, go to the website of CGTMSE