CGTMSE Coverage for Micro and Small Enterprises
CGTMSE coverage for Micro and Small Enterprises is an initiative of the Government of India and SIDBI to ensure bank credit to Micro and Small Enterprise (MSE) without the insistence for collateral securities or third party guarantees. CGTMSE stands for or Credit Guarantee Fund Trust for Micro and Small Enterprises. The Micro, Small and Medium Enterprises (MSME) sector is the biggest employer in India after agriculture and contributes to around 30 per cent of the Gross Domestic Production of the country. Thus the growth of the sector has a bearing on the progress of the country.
CGTMSE Coverage for Micro and Small Enterprises -Credit Guarantee Scheme (CGS) by CGTMSE
Credit Guarantee Scheme (CGS) is a guarantee scheme launched by CGTMSE to support member lenders by extending guarantees in respect of credit facilities extended by lending institutions to the borrowers in Micro and Small Enterprises (MSEs). Lenders can opt for the guarantee for the credit facilities provided to the borrowers engaged in business or service or running any other establishment, coming under the category of Micro and Small as defined under the MSMED Act, 2006. However, CGTMSE has the right to decline the guarantee proposal submitted by a lending institution.
Further, the borrower shall submit the following documents to the lending institution, if he is seeking CGTMSE coverage for micro and small eneterprises:
- Udyog Aadhaar Number (UAN): In accordance with the Government’s direction and to meet the compliance requirement under Direct Benefit Transfer (DBT), lending institutions shall obtain and provide Udyog Aadhaar Number (UAN) of the promoter while submitting the application for guarantee coverage. UAN is a unique number for each individual/unit issued at the time of registration of the unit.
- IT – PAN : Borrowers shall submit the IT-PAN of the promoter / entity to the lender. This enables the lender to find out if a particular borrower has fully/partially availed one-time limit under CGTMSE. This also enables lenders to ascertain the status of earlier accounts of the borrower covered under the CGTMSE coverage.
Credit Guarantee Scheme 1 (CGS-I)
Credit Guarantee Scheme -1 covers the credit facilities (fund based and non-fund based) extended to each eligible MSE borrower, in respect of whom guarantee cover is sought by the lending institution and approved by CGTMSE. New and existing Micro and Small Enterprises engaged in manufacturing or service activity excluding Educational Institutions, Agriculture, Self Help Groups (SHGs), Training Institutions etc are eligible to be covered.
The guarantee coverage is extended against payment of Annual Guarantee Fee (AGF) for the first year and thereafter against the payment of guarantee fee on annual basis on the material date, ie date on which the annual guarantee fee on the amount covered in respect of eligible borrower becomes payable by the Member lending institution to the Trust.
Maximum guarantee coverage under CGS-1 of CGTMSE
CGS-1 covers credit facilities extended to a single eligible borrower by way of working capital/ term loan and/or non-fund based facilities as shown below, based on the status of lending institution
(i) Not exceeding Rs. 50 lakh (Regional Rural Banks/Financial Institutions);
(ii) Not exceeding Rs. 200 lakh (Scheduled Commercial Banks, select Financial Institutions and Non Banking Financial Companies (NBFCs); and
(iii) Not exceeding Rs. 50 lakh (Small Finance Banks -SFBs)
During the initial phase, retail traders were not covered under CGS-1. As of now, credit facilities extended to the MSE Retail Trade segment too are eligible for guarantee coverage upto Rs. 100 lakhs.
Conditions to be satisfied for coverage under CGS-1 of CGTMSE
- The credit facility shall be extended to borrowers under MSE sector without any collateral security and/or third party guarantees after entering into agreement with the CGTMSE.
- The lending institution shall evaluate credit applications by using prudent banking judgement as in the case of any other proposal and shall ensure monitoring of account throughout the life of account and take collection / recovery efforts, in case of default. The guarantee coverage does not absolve the lender from any of the responsibilities being performed by the lender on credit facilities granted by the lender in the normal course of business.
- Lending institution shall ensure invoking claims, payment of guarantee fee etc in a timely manner as per the agreement executed with CGTMSE.
- As on the material date
(i) Credit facility is standard and regular (not SMA) as per RBI guidelines and / or
(ii) The business or activity of the borrower for which the credit facility was granted has not ceased and / or
(iii) The credit facility has not wholly or partly been utilized for adjustment of any debt deemed bad or doubtful of recovery, without obtaining a prior consent in this regard from the Trust.
Claim amount receivable by the lending institution for defaulted accounts
Maximum claim permissible to the lending institution under CGS-1 covered by CGTMSE will be subject to the following upper ceilings.
| Category | Maximum Extent of Guarantees where credit facility is | ||
| Up to Rs 5 Lakh | Above Rs 5 L up to Rs 50 Lakh | Above Rs 50 lakh up to Rs 200 Lakh | |
| Micro Enterprise | 85% of the amount in default subject to a maximum of Rs 4.25 L | 75% of the amount in default subject to a maximum of Rs 37.50 L |
75% of amount in default irrespective of the category of the borrower /location of the unit/ credit facility maximum of Rs 150 L |
| Women entrepreneurs/units located in North East Region (incl Sikkim)other than credit facility up to Rs 5 L to micro enterprises) | 80% of the amount in default subject to a maximum of Rs 40 Lakh | ||
| All other category of borrowers* | 75% of the amount in default subject to a maximum of Rs 37.50 Lakh | ||
*The coverage for retail traders will be 50% of the amount extended by the bank.
Credit Guarantee Scheme 1 (CGS-I) – Hybrid Security Coverage
The CGS coverage was initially envisaged only for credit facilities extended without collateral/ third party guarantee. The new “Hybrid Security” product introduced by CGTMSE allows guarantee cover for the portion of credit facility not covered by collateral security. In this model, lending institutions can obtain collateral security for a part of the credit facility and CGS coverage up to maximum of Rs. 200 lakh can be opted for the remaining part of the credit facility. CGTMSE will, however, have paripassu charge on the primary security as well as on the collateral security provided by the borrower for the credit facility.
CGTMSE Coverage for Micro and Small Enterprises – Credit Guarantee Scheme II (CGS-II)
Credit Guarantee Scheme II is the guarantee scheme designed for NBFCs alone. CGTMSE shall cover credit facilities (Fund based and/or Non fund based) extended by Member Lending NBFC to a single eligible borrower in the Micro and Small Enterprises sector for credit facility not exceeding Rs.200 lakh by way of Loan, with/without any collateral security or such amount as may be decided by the Trust from time to time. However, in respect of MSE Retail Trade the coverage of credit facility would be upto Rs. 100 lakh. Coverage can be made on portfolio basis. Here, portfolio means cumulative built up of eligible quarterly sanctions.
Credit facilities extended by more than one NBFC and/or bank/ financial institution jointly and/or separately to eligible borrower up to a maximum of Rs.200 lakh per borrower / ceiling approved by CGTMSE can also be covered under the scheme.
Why are banks hesitant to lend to MSE sector with CGTMSE coverage?
