What is CGTMSE – Features, Benefits, Eligibility & Documents Required?

Credit Guarantee Fund Trust Scheme for Micro Small and Medium Enterprises (CGTMSE)

One major issue that the MSES encounters is the lack of access to sufficient credit at a fair interest rate on time. One of the major causes for the low availability of bank finance to this sector is the high-risk perception of the banks in lending to MSES.

Hence, lending institutions insist on MSES collateral securities which are not easily available to these enterprises. The problem is more serious for micro enterprises requiring small loans and first-generation entrepreneurs. 

To solve this issue, the Indian government’s Ministry of Micro, Small & Medium Enterprises (MSME) introduced the Credit Guarantee Scheme (CGS) to improve the credit system and help small businesses get loans. To make this happen, the government partnered with SIDBI to create the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

What is CGTMSE?

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is a trust launched by the Ministry of Micro, Small and Medium Enterprises, the Government of India, and the Small Industries Development Bank of India (SIDBI).

The scheme was launched on 30 August 2000. The primary objective of the CGTMSE scheme is to give credit guarantees to financial institutions that provide loans to SMEs and MSMEs. CGTMSE is a program that wants to motivate aspiring business owners to apply for loans without having to provide collateral.

This means that they can start their businesses without worrying about the possibility of not being able to repay the loan. In case the borrower is unable to repay the loan, the trust fund will step in and reimburse the lending institution up to a certain amount.

The initial contribution ratio for the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) corpus is 4:1, with the Government of India contributing the larger share. [CGTMSE Annual Report 2023] respectively and has contributed 2477.78 crore. As announced in the Package for MSES, the corpus was to be raised to ₹2,500 crore by the end of the 11th Plan.

Key Features and Objectives

• Loans Without Collateral: CGTMSE supports entrepreneurship by providing loans without the need for collateral, helping to lessen the financial stress on new business owners.
• Support from Government: This program is supported by the Government of India and SIDBI, giving assurance to both lenders and borrowers.
• Reducing Risks: Through offering credit guarantees, CGTMSE helps to lower the risks linked with lending to MSEs, promoting a favorable atmosphere for business expansion.

Eligible Credit Facility or Amount of Guarantee Cover

• Micro-enterprises: 85% guarantee cover for loans up to ₹5,00,000.
• Women entrepreneurs and units in North East Region including Sikkim: 80% guarantee cover for loans up to ₹50,00,000, with a maximum amount of ₹40 lakhs.
• All other categories of borrowers: 75% guarantee cover for loans up to ₹50 lakhs, with a maximum of ₹35.5 lakhs.
• Loans above ₹50 lakhs and up to ₹200 lakhs: 50% credit guarantee cover.
• MSE retail trade: 50% credit guarantee cover for loans above ₹10 lakhs and up to ₹100 lakhs.

For the financial year 2019, CGTMSE approved guarantees for an aggregate loan amount of ₹30,168 crores, which was a 58% increase compared to the previous year, marking the highest number of approvals since the scheme’s inception. The number of guarantees approved increased to 4.36 lakh from 2.63 lakh in the financial year 2018.

Which Enterprises can avail of the CGTMSE Fund?

The CGTMSE scheme is open to new and existing Micro, Small, and Medium Enterprises (MSMEs) engaged in manufacturing and service activities, excluding a few specific categories. Here’s a breakdown:

Eligible Businesses:

• Manufacturing: Units involved in the production of goods, including food processing, textiles, chemicals, engineering, and automobiles.
• Services: Businesses offering a wide range of services, such as:
  • Information technology
  • Tourism and hospitality
  • Education and healthcare
  • Transportation and logistics
  • Trading (excluding retail trade)
  • Financial services (excluding banking and insurance)
  • Repair and maintenance services

Ineligible Businesses:

• Retail trade: Businesses primarily involved in selling finished goods directly to consumers, such as shops and supermarkets.
• Educational institutions: Schools, colleges, universities, and other institutions providing formal education.
• Self-help groups (SHGs): Informal associations of individuals formed for collective action.
• Training institutions: Organizations offering vocational or skill development training.

Eligible Lending Institutions 

Various types of lending institutions can participate in the CGTMSE scheme. Let’s take a look at each one:

• Scheduled Commercial Banks: This category includes different types of banks such as Public Sector Banks, Private Sector Banks, and Foreign Banks. These banks play a crucial role in providing credit facilities to businesses.
• Regional Rural Banks (RRBs): Selected RRBs are also eligible for participation in the scheme. These banks specifically focus on extending credit facilities to micro and small enterprises (MSEs). The unique thing about RRBs is that they provide credit without requiring collateral security or third-party guarantees.
• State Financial Corporations (SFCs): Certain SFCs have been included as Member Lending Institutions (MLIs) under the scheme. These corporations also contribute to providing credit facilities to eligible borrowers.
• Non-Banking Financial Companies (NBFCs): NBFCs registered under the Reserve Bank of India (RBI) Act can also avail guarantee cover for eligible credit facilities. These companies play an important role in the financial sector.
• Small Finance Banks (SFBs): SFBs are specifically designed to cater to the financial needs of small businesses. They are eligible MLIs under the CGTMSE scheme.
• Scheduled Urban Co-operative Banks: This category includes different types of co-operative banks such as Non-Scheduled Urban Co-operative Banks, State Co-operative Banks, and District Central Co-operative Banks. These banks also participate in the scheme.
• Microfinance Institutions (MFIs): MFIs that meet the eligibility criteria can also participate in the scheme. These institutions provide financial services to low-income individuals and small businesses.
• Small Industries Development Bank of India (SIDBI): SIDBI plays a crucial role in supporting small businesses and promoting entrepreneurship. It is an important institution in the field of small industries.
• National Small Industries Corporation Ltd. (NSIC): NSIC is another significant organization that contributes to the development of small industries. It is also included as an eligible institution under the CGTMSE scheme.
• North Eastern Development Finance Corporation Ltd. (NEDFi): NEDFi is an eligible institution that focuses on supporting the development of businesses in the North Eastern region of India.
• Private Sector Banks and Foreign Banks: Yes, private sector banks and foreign banks can also be eligible for guarantee cover under the CGTMSE scheme. However, they need to be commercial banks listed in the II Schedule to the Reserve Bank of India Act 1934
• New Guidelines for Regional Rural Banks (RRBs): To be eligible for guarantee cover, RRBs must meet the requirements outlined in the circular issued on October 08, 2021. The Trust provides coverage for credit facilities (both fund-based and non-fund-based) offered by specific RRBs to qualified borrowers in the Micro and Small Enterprises sector. The credit limit should not surpass ₹200 lakh and may consist of term loans and/or working capital facilities.
• Exceptions: Educational institutions, training institutions, retail traders, and self-help groups are not included in the CGTMSE scheme.

Businesses Eligible for the CGTMSE Scheme:

The CGTMSE scheme is open to new and existing Micro, Small, and Medium Enterprises (MSMEs) engaged in manufacturing and service activities, excluding a few specific categories. Here’s a breakdown:

Eligible Businesses:

• Manufacturing: Units involved in the production of goods, including food processing, textiles, chemicals, engineering, and automobiles.
• Services: Businesses offering a wide range of services, such as:
  • Information technology
  • Tourism and hospitality
  • Education and healthcare
  • Transportation and logistics
  • Trading (excluding retail trade)
  • Financial services (excluding banking and insurance)
  • Repair and maintenance services

Ineligible Businesses:

• Retail trade: Businesses primarily involved in selling finished goods directly to consumers, such as shops and supermarkets.
• Educational institutions: Schools, colleges, universities, and other institutions providing formal education.
• Self-help groups (SHGs): Informal associations of individuals formed for collective action.
• Training institutions: Organizations offering vocational or skill development training.

Documents Required for Loan Application

Make sure you gather all the important papers needed for your loan application. These may include certificates of business incorporation, reports on your project, and letters of loan approval. You can find a detailed list of required documents at CGTMSE: Scheme, Fee, Full Form, Loan Eligibility …

• Complete the CGTMSE loan application form
• Attach passport-sized photographs.
• Provide the Business Incorporation or Company Registration Certificate
• Business Project Report,
• The CGTMSE Loan Coverage Letter
• copy of the loan approval from the Bank.
• Any other documents that the Bank may require.

Tenure of Guarantee

The guarantee Covered under the CGTMSE scheme is for the agreed tenure of the term loan/composite credit. For working capital facilities, the guarantee is valid for either 5 years or a block of 5 years

Fee for Guarantee

The trust fund has revised the fee structure, and the current Annual Guarantee Fee (AGF) rates are as follows:

• 0.37% for credit up to ₹10 lakh
• 0.55% for credit above ₹10 lakh and up to ₹50 lakh
• 0.60% for credit above ₹50 lakh and up to ₹1 crore
• 1.20% for credit above ₹1 crore and up to ₹2 crore
• 1.35% for credit above ₹2 crore and up to ₹5 crore

These rates are applicable to all guarantees approved or renewed on or after April 01, 2023.

How can one opt for this Scheme?

The process for availing the CGTMSE scheme generally involves the following steps:

1. Prepare a detailed Business Plan demonstrating the project’s feasibility.
2. Choose a CGTMSE-approved Member Lending Institution (MLI) and submit the application along with the Business Plan.
3. The MLI reviews the application and Business Plan.
4. Upon approval, the MLI forwards the application to the CGTMSE Fund for further evaluation.
5. If the Fund approves the application, it instructs the MLI to disburse the funds for the business.

For the most accurate and up-to-date information, it’s recommended to refer to the official CGTMSE website or contact relevant financial institutions.

Conclusion

In Conclusion, CGTMSE plays a crucial role in supporting Micro and Small Enterprises (MSEs) in India by offering them financial assistance and credit options. By implementing various programs, CGTMSE helps boost the MSME industry, promoting economic advancement and encouraging entrepreneurship across the country.

Frequently Asked Questions (FAQs)