CGTMSE – Credit Guarantee Fund Trust for Micro and Small Enterprises

A special protection is given to the Micro, Small and Medium enterprises via the MSME Act, 2006. These are small-scale industries which require immunity and special protection to flourish. These industries form the very backbone of our Indian Economy. One of the government-sponsored schemes for MSMEs is the CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises). In this article, we will learn more about this fund.

What is the CGTMSE?

The whole idea behind this trust is to provide financial assistance to these industries without any third party guarantee/ or collateral. These schemes provide the assurance to the lenders that in case of default by them a guarantee cover will be provided by trust in the ratio of 50/75/80/85 percent of the amount so given. The objectives of this fund are:

1. To check the financial viability of the project of these companies
2. To give term loans and composite credit schemes

As per this scheme, a loan of up to Rs. 200 lakhs can be given to MSMEs. A special preference is given to the women entrepreneurs who are eligible for this scheme. Loans are also provided to borrowers who are located in the Northeastern States of India including Sikkim and Jammu and Kashmir.

What are the fees charged by the CGTMSE?

The fees charged by the trust fund is a percentage of 1% p.a of the amount so sanctioned:

1. 0.75% – for credit of up to Rs. 5 Lakhs
2. 0.85% for credit above Rs. 5 Lakhs but up to Rs. 100 Lakh

The credit guarantee available under this scheme is 75/80% of the amount so given to a maximum cap of Rs. 62.5 Lakh / 65 Lakh for a credit facility of up to Rs. 50 Lakhs. The percentage guarantee is 85% for micro-enterprises for a sum of up to Rs. 5 lakhs. The percentage of guarantee is 50% of the amount so sanctioned for a credit of above Rs. 50 Lakhs with a maximum limit of Rs. 100 Lakhs. The tenure of the guarantee is a block of 5 years.

What is the extent of the cover given by CGTMSE?

The extent of cover is up to 80% for –

1. Micro and small enterprise which are operated and owned by women entrepreneurs.
2. All credits or loans given to the North eastern states of India including the state of Sikkim.

In case of default, the trust will settle the claim up to 75% or 80% of the amount no repaid up to the limit cap of Rs. 50 Lakhs. For the amounts above Rs. 50 Lakhs to Rs. 200 Lakhs the guarantee cover is reduce to 50%.

Which enterprises can avail the CGTMSE fund?

The enterprises which are eligible for this scheme are : New as well as existing Micro, Small and Medium enterprises who are engaged in the process of;

a. manufacturing activity

b. service activity, except:

i. Retail Trade

ii. Educational Institutions

iii. Self Help Groups

iv. Training Institutions.

It is now available for selected NBFC’s also.

Which banks are associated with the CGTMSE scheme?

The banks which can work as eligible lenders are:

1. Schedules Commercial Banks, which may be either Public or Private Sector or a Foreign bank.
2. NABARD has classified some Regional Rural Banks under the “Sustainable Viable” category. These banks can act as a Eligible Bankers.
3. There are 133 eligible lending institutions registered as MLI’s of the TRUST. (Till May 31, 2015) which comprises of:

a. 26 Public Sector Banks

b. 21 Private Sector Banks

c. 73 Regional Rural Banks

d. 4 Foreign Banks

e. Delhi Financial Corporation

f. Kerala Financial Corporation

g. Jammu & Kashmir Development Finance Corporation Ltd.

h. Export-Import Bank of India

i. The Tamil Nadu Industrial Investment Corporation Ltd.

j. National Small Industries Corporation (NSIC), North Eastern Development Finance Corporation (NEDFI)

k. Small Industries Development Bank of India (SIDBI)

How can one opt for this scheme?

The procedure to opt for this scheme is explained below:

1. The first and the foremost step to avail this scheme is to prepare a proper Business Plan including all the details financial and otherwise. The business model should be such that it explains out the viability of the project.
2. After the business model is constructed, the decision regarding which lender bank to approach is to be taken. Once that is done the application along with the business model is to be submitted to the bank.
3. The bank will check and verify all the details of the application and the model of the project so submitted.
4. After verification, the bank will further send the application to the CGFTMSE Fund where the application will be scrutinized again. If it is approved the Fund will instruct the bank to release funds for the business.

After the approval comes through the business will have to pay the borrowers will have to pay the CGTMSE guarantee and service fee.