Credit Guarantee Fund Scheme – Bringing Positive Transformation in India

India’s government has launched a scheme called the Credit Guarantee Fund Scheme for MSMEs to provide security free or collateral-free credits to small and micro-enterprises. Businesses working from before the scheme and which are new are covered under the Credit Guarantee Fund Scheme. Small Industries Development Bank of India (SIDBI), Ministry of Micro, Small and Medium Enterprises, and India’s Government came together. It made a trust called “Credit Guarantee Fund Trust” for Micro and Small Enterprises (CGTMSE) to execute the Credit Fund Scheme. This scheme was launched on 30 August 2000. 

The aggregation of CGTMSE is done by SIDBI and the Indian government in 1:4 and has contributed. 2477.78 Rs. Crore on the aggregate of the Credit Guarantee Fund Trust.

Credit Guarantee Fund Scheme- Eligible Public Lending Institutions

The banks eligible under the Credit Guarantee Fund scheme are commercial banks, public and private sector banks, and RRBs. There are a total of 26 Public sector banks, four foreign banks, 73 RRBs and 21 Private Sector Banks and nine other financial institutions like Kerala financial Corporation, J&K Development Finance Corporation Ltd, Delhi Financial Corporation, Andhra Pradesh State Financial Corporation, Export-Import Bank of India, NSIC, and SIDBI.

Advantages of Credit Guarantee Fund Scheme 

MSMEs are an essential part of the Indian economy and contribute around 10% to the country’s GDP. They furnish employment to crores of people, although they face several hurdles in procuring credits and business loans in spite of the fact that the huge presence across different market segments, credit lending establishments keep edgy about the high rate of NPAs in small scale businesses. Even though it’s a great risk, these factors’ liability creates issues for the businesses and, therefore, the banks. For instance, SMEs don’t notice the credit approval process easy and friendly. Banks don’t like to lend unless they have checked the loan documents repeatedly and are completely assured. 

To tackle these situations, CGTMSE stood up to play an important part; it shared the risk factor and tired to bring relied upon the financial institutions and the borrowers.

Credit Guarantee Fund Scheme offers an important advantage for new and old MSMEs; the major importance is that an individual can get the credit facility, although he/she has minimum or no expertise in establishing a business and the Ministry of MSME has given focus to the scheme and keeps on monitoring its progress regularly.

Eligible Credit Facility

The credit facilities that are eligible to be enclosed under this scheme are term loans and working capitals up to Rs.100 lakh each borrowing unit widening without any security or collateral or third party guarantee for small and micro-enterprises. For those units enclosed under the credit guarantee fund scheme, which may fall to factors beyond the management control, regrowth assistance is also improved by the lending institution, which is also covered under this scheme.

Effectiveness of Credit Guarantee Fund Scheme

The scheme is changing the credit picture of MSMEs at a fast pace. In recent times, financial institutions have allowed a large number of credits against big amounts. Almost all of them have given expected positive results in developing the business and made the loan payment on time. As India’s government launched this initiative, the credit guarantee fund scheme also tries to make people aware of MSE and public lending institutions to help and so they can take advantage of available credits.

The period of Guarantee cover

The credit guarantee fund under this scheme is allowed for a loan, and in case of capital for working, the cover is for five years.

Spreading Awareness regarding the scheme

Credit Guarantee Fund Scheme uses various methods to create Awareness for the scheme among banks, micro and small industries, and MSME sector. CGTMSE, through various means of media like print, press, workshops, seminars, and social awareness programs, organized at different villages, districts, etc. Throughout the year, CGTMSE participated in various seminars/workshops organized by MLIs and Industry Associations, exhibitions, and conferences organized by the Reserve Bank of India and by the government in reference to the MSE sector across the country to make Awareness regarding the scheme.

How to avail loan under CGTMSE?

CGTMSE allows lending institutions to help small and micro enterprises with objectiveness and provides additional importance to the project viability and business model validation. To get the loan under the scheme, the borrower has to pat an extra guarantee fee and service charge with the bank’s interest.

Process in Detail

Developing Business Entity: The borrower has to incorporate a personal restricted company, liability partnership, one-person company, or proprietary in keeping with the character of the business and acquire necessary approvals and tax registrations for the capital of the project.

Business Plan: Borrowers ought to conduct market research and prepare a business strategy containing relevant information, resembling business model, promoter profile, projected financials, and so forth, the report is then given to the credit facility, and an application is filed for obtaining the loan under the scheme. However, businesses ought to contemplate that such project reports be ready by fully-fledged professionals. It shall increase the probabilities of approval.

Bank Sanction: Then, the request for a bank loan is made, which generally considers credit time, business capital formalities. The bank attentively examines all the documents, business models, and processes the loan application.

Taking the Guarantee cover: When a bank has given the loan, the particular lending institution applies to the scheme and obtains a scheme cover. 

Aatmnirbhar Sena will make people aware of the CGTMSE scheme by organizing seminars and workshops to reconstruct the degraded small business and empower them and their businesses with affordable short-term and long-term loans. Aatmnirbhar Sena will usher the growth of new enterprises and startup businesses and providing guidance on growing and expanding the business.