CGMSE GIVING IMMENSE BOOST TO B2B SECTOR
Launched to make collateral-free credit available to the micro and small enterprise sector, the Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGMSE) has provided much-needed impetus to several enterprises. Gandharv Walia explores
The Ministry of Micro, Small and Medium Enterprises and Small Industries Development Bank of India (SIDBI) have 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 (MSEs). Of the problems of MSEs, non- availability of timely credit at reasonable interest rate is one of the most important. One of the causes for low availability of finance to the sector is high risk perception of the banks in lending to MSEs.
ELIGIBLE LENDING INSTITUTIONS
The institutions, which are eligible under scheme, are scheduled commercial banks (public sector banks, private sector banks or foreign banks) and select regional rural banks, which have been classified under ‘Sustainable Viable’ category by NABARD. National Small Industries Corporation Ltd. (NSIC), North Eastern Development Finance Corporation Ltd. (NEDFi) and SIDBI have been made eligible institutions.
ELIGIBLE CREDIT FACILITY
The credit facilities, which are eligible to be covered under the scheme, are both term loans and working capital facility up to Rs 100 lakh per borrowing unit, extended without any collateral security or third party guarantee, to a new or existing micro and small enterprise. For those units covered under the guarantee scheme, which may become sick owing to factors beyond the control of management, rehabilitation assistance extended by the lender could also be covered under the guarantee scheme.
If the credit facility exceeds Rs 50 lakh, it may still be covered under the scheme but the guarantee cover will be extended for credit assistance of Rs 50 lakh only. The credit facility should be availed by the borrowing unit from a single lending institution. However, the unit already assisted by the state level institution, NSIC and NEDFi can be covered under the scheme for the credit facility availed from member bank, subject to fulfillment of other eligibility criteria. Any credit facility in respect of which risks are additionally covered under a scheme, operated by government or other agencies, is not be eligible for coverage under the scheme.
GUARANTEE COVER
The guarantee cover available is to the extent of 75 per cent of the sanctioned amount of the credit facility. The extent of guarantee cover is 80 per cent for micro enterprises for loans up to Rs 5 lakh; MSEs operated and owned by women, and all loans in the North-East Region. In case of default, trust settles the claim up to 75 per cent or 80 per cent of the amount in default of the credit facility extended by the lending institution. For this purpose, the amount in default is reckoned as the principal amount outstanding in the account of the borrower, in respect of term loan, and amount of outstanding working capital facilities, including interest, as on the date of the account turning NPA.