Of all the troubles faced by MSEs, the unavailability of timely and sufficient credit at a reasonable interest rate is one of the most important. One of the main causes of the scarce availability of bank financing for this sector is the high risk perception of banks in lending to MSEs and the consequent insistence on collateral that is not readily available with these companies. The problem is more serious for micro-enterprises applying for small loans and for first-generation entrepreneurs.
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The Micro and Small Business Credit Guarantee Fund (CGS) scheme was launched by the Government of India (GoI) to make unsecured credit available to the micro and small business sector. Mutually existing and new businesses can be covered by the scheme. The Ministry of Small, Micro and Medium Enterprises, GoI and Small Industries Development Bank of India (SIDBI), has recognized a Trust called Credit Guarantee Fund Trust for Micro and Small Business (CGTMSE) to perform the Credit Guarantee Fund Scheme for Micro and Small Enterprises.
The scheme was officially launched on August 30, 2000. The CGTMSE corpus was provided by the GoI and SIDBI in the ratio of 4: 1 respectively and contributed Rs. 2477.78 crore to the Trust corpus until 31 May 2016. As announced in the MSE Package, the corpus was to be raised to Rs. 2500 crore by the end of the 11th floor.
- Eligible Lending Institutions the Banks / Financial Institutions, which can benefit from the scheme, are programmed commercial banks (Public sector banks / Private sector banks / Foreign banks) and selected rural banks (which have been classified in the ‘Sustainable’ category by NABARD). Till May 31, 2016, there were 133 eligible credit institutions registered as MLI of the Trust, including 26 public sector banks, 21 private sector banks, 73 regional rural banks (RRBs), 4 overseas banks and 9 other institutions, for example Delhi Financial Corporation, Kerala Financial Corporation, Jammu & Kashmir Development Finance Corporation Ltd, Andhra Pradesh State Financial Corporation, Bank such as Export and Import Bank of India and SIDBI.
- Eligible credit facility the credit lines that can be covered by the scheme are both term loans and / or working capital line up to Rs. hundred lakh per borrower unit, extended without any collateral and / or third-party guarantee, to a new or existing micro and small businesses. For units covered by the guarantee scheme, which may become ill due to factors beyond management’s control, rehabilitation assistance extended by the provider may also be covered by the guarantee scheme. Any credit line for which risks are further covered by a program, managed by the government or other agencies, will not be eligible for coverage under the program. Warranty coverage The coverage of the guarantee available under the scheme is up to a maximum of 85% of the sanctioned amount of the credit line. The coverage of the guarantee given is up to 75% of the credit line up to Rs.50 lakh (85% for loans up to Rs.5 lakh provided to micro-enterprises, 80% for MSE owned / managed by women and all loans to NER including Sikkim) with a uniform 50% guarantee for the full amount if the credit exposure is greater than Rs.50 lakh and up to Rs.100 lakh.
In the event of default, the Trust terminates the credit up to 75% (or 85% / 80% / 50% where applicable) of the defaulted amount of the credit line extended by the credit institution. To this end, the defaulting amount is calculated as the principal amount outstanding in the borrower’s account, in relation to the term loan, and the amount of outstanding working capital lines, including interest, at the date the account is transformed the impaired business (NPA). Duration of the guarantee the guarantee coverage under the scheme covers the agreed term of the term / composite loan. In the case of working capital, the coverage of the guarantee is 5 years or block of 5 years.
Guarantee fee A composite total annual guarantee fee of 1.0% per annum. Of the sanctioned credit line (0.75% for the credit line up to Rs. Five lakh and 0.85% for over Rs. Five lakh and up to hundred lakhs for women, micro-enterprises and units in the NER including Sikkim) is now being charged. Scheme awareness programs The CGTMSE has adopted a multi-channel approach to raise awareness among banks, MSE sector associations, the MSE sector, etc. Through the press and the press, conducting workshops / seminars, participating in programs organized in various district / state / national forums, etc.
- During the year CGTMSE participated in several seminars / workshops organized by MLI and sector associations, exhibitions and meetings organized by RBI / Govt. in connection with the MSE industry, across the country to create awareness of CGS. CGTMSE officials also held business development meetings with its member credit institutions.
- Sustained press campaigns were conducted across the country throughout the year to improve visibility and create awareness of the program. Campaigns to disseminate information among the various stakeholders were vigorously conducted.
- During the 2016 financial year, CGTMSE participated in 21 seminars / workshops / banker meetings / business development meetings and also gave presentations to raise awareness of bank officials / small businesses on various aspects of the credit guarantee system. The workshops / programs were generally organized by member banks / SIDBI / CGTMSE / sector associations, etc.
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