ROLE & FUNCTIONS OF CREDIT GUARANTEE TRUST FOR SMALL INDUSTRIES 

ROLE & FUNCTIONS OF CREDIT GUARANTEE TRUST FOR SMALL INDUSTRIES 

OVERVIEW:

GOI in collaboration with MSME & SIDBI launched a program with the name, CGTMSE i.e Credit Guarantee Trust for Small Industries on August 30, 2000. As it could be gathered from the name, the entity is a trust and it has been formed with the purpose to provide credit guarantees to Financial Institutions so that they can further provide loans to MSEs and MSMEs. 

The main purpose for why it has been set up is to encourage first-time entrepreneurs to set up SMEs & MSMEs by making available collateral-free loans to them. This scheme, as mentioned earlier, gives credit guarantees on behalf of these entrepreneurs up to a certain limit, thereby, making provision of loans to first-generation entrepreneurs to give them an opportunity of flourishing in the competitive environment without bearing the burden to provide security or third party guarantees.

FEATURES OF THE CREDIT GUARANTEE SCHEME:-

This credit guarantee scheme has been proposed to meet certain objectives. Although, its main focus is to provide credit relief so as to promote credit flow to the sector of SMEs & MSME. 

Following are some of the main features of the CGTMSE scheme: 

1. It provides provision of guaranteed repayment: 

• of 75-80% in some of the defaulted cases for principal loan amount up to rupees 50,00,000.00 
• Of 50% in cases, where principal loan amount ranges between Rs.50,00,000 to Rs. 1,00,00,000.00 
• Of 85% in cases, where the principal loan amount is </= Rs. 5,00,000.00 to micro-enterprises 
• Of 80% in cases where the loan is provided to women entrepreneurs or we are the location of the unit falls in the North East region. 

1. The loan recovery procedure covers the principal amount and the interest for the time period of 3 months or the whole outstanding loan amount along with interest from the suit filing date on the date when it turns into an NPA, whichever is lower.

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1. When business units are beyond the scope of recovery (to the extent of Rs.1,00,00,000.00) than to support the lender, business units are provided rehabilitation facilities.

2. Maximum Guarantee Cover:

CGTMSE SCHEME ELIGIBILITY CRITERIA:

To make available MSME entrepreneurs collateral and third-party guarantee free advance, a Credit guarantee under CGTMSE has been set up. As per the scheme, NBFCs can also be the lending institution and are eligible for a maximum credit cap of Rs. 2 crores. 

Following is the eligibility criteria that has been prescribed for credit providers and borrowers: 

ELIGIBILITY CRITERIA FOR LENDING INSTITUTIONS: The following institutions are eligible to provide MSME business units that lend to the specific sector & have entered into an agreement with CGTMSE under this scheme:

• Scheduled Commercial Banks, 

• Specified Regional Rural Banks (LRAB), 

• SIDBI, 

• NSIC, 

• NEDFi, 

• SFB & 

• NBFCs 

These are designated as Member Lending Institutions (MLIs) and stand at 131 at present.

ELIGIBILITY CRITERIA FOR LENDING BORROWERS: To be eligible under this scheme, the new and existing SMEs are required to fulfill the below conditions:

• The loans < Rs. 62.5 or 65 lakhs, the maximum credit facility will provide for a guarantee cover of Rs.50,00,000.00 
• The credit facilities > Rs.50 lakhs, the maximum guarantee cap is Rs. 1,00,00,000.00
• Term credit for the entire outstanding amount on the date of declaration of the loan as ‘NPA’ or on the suit filing date.

Exclusions: Some entities are specifically excluded from the CGTMSE coverage i.e. 

• Educational Institutions. 
• Agriculture.
• Training Institutes.
• Retail Trade.
• Self Help Groups (SHG).

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CGTMSE Application:

The responsibility lies on the lender for sending the application for eligible credit facilities as they get sanctioned. The norms and the terms that apply for this scheme are as follows: 

• The guarantee will start from the date CGTMSE fees are paid 
• The launch that gets sanctioned during a quarter, their guarantee will start latest by the subsequent calendar quarter-end. 
• For Term & Composite loans, the guarantee cover will have an agreed-upon tenure period. 
• For working capital loan, the guarantee. will be 5 years for the period that is specified by CGTMSE.

DOCUMENTS REQUIRED FOR CGTMSE LOAN PROCESS:-

For getting a credit facility or loan under the CGTMSE scheme, the following steps are required to be taken: 

Establishment of the Business Entity: The first thing that a unit need is a distinct identity and that could be done by getting registered either as a proprietorship, partnership firm, or a company along with any necessary approvals, tax registrations, and certificates that would be required for the execution of the project 

Business Project Report: The application must also have a business project report which must have well-defined components of the project which are based on a thorough market study and analysis covering the following factors: 

1. Business Model.
2. Promoter Profile.
3. Cost & other Financials

Submission: The project report along with the application for CGTMSE should be submitted to the lending bank or the financial institution for further processing. This submission is the first step for the completion of the project.

CGTMSE Scheme Banks Sanction:  The processing will start once the application gets submitted. The loan will get sanctioned as per the banks or the financial institution’s policy after property valuation and checking the viability of the project.

Obtaining CGTMSE Loan Cover: After sanctioning the loan, the responsibility lies on the lender to file for guarantee cover under the CGTMSE scheme.

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INTEREST RATE FOR CGTMSE LOAN:-

As lenders impose a certain cost in the form of interest for sanctioning the credit facility. This interest forms a major part of the cost to the borrower. And most of the lenders recover this loan interest (which < 14-18%) including the cover of the guarantee.

Thus, these are some of the major things under the preview of the CGTMSE Loan Scheme. If you want to get more information on CGTMSE Scheme, then tell us in the comment section below.