Credit Guarantee Funds Trust for Micro and Small Enterprises (CGTMSE) is a trust established by the Government of India, under the Ministry of Micro, Small and Medium Enterprise (MoMSME) and Small Industries Development Bank of India (SIDBI).
Launched in 2000, the CGTMSE scheme offers credit guarantees to financial institutions that offer loans to Micro and Small Enterprises (MSEs). CGTMSE scheme offers credit guarantees from 75% to 85% to MSEs across India. Let’s further discuss various aspects of the CGTMSE scheme.
Features of CGTMSE Scheme
|Interest Rates||As per RBI’s Guidelines is eligible for coverage under CGTMSE|
|Eligible Activities||· Manufacturing and Services including Retail trade is allowed|
· Educational and Training institutions, Self Help Groups (SHGs), and agriculture-related activities are not eligible
|Loan Amount||· For Micro and Small Enterprises (MSEs)– Credit facility up to Rs. 200 lakh can be covered on an outstanding basis|
· For Regional Rural Banks (RRBs) and Select Financial Institutions credit facility up to Rs. 50 lakh is allowed
|Guarantee Coverage||From 75% – 85% (50% Coverage for retail activity)|
|Collateral / Third Party Guarantee||Not required|
What is Credit Guarantee under CGTMSE Scheme
Credit Guarantee refers to a situation where the loan to the applicant is backed by a party without the need for any external collateral or third-party guarantee. Here, the loan sanctioned by the member lending institution is backed by the scheme which provides the guarantee cover for a large portion of the loan amount. Under the CGTMSE scheme, both new and existing micro and small enterprises, including manufacturing and service enterprises are eligible for a credit facility up to Rs. 2 crores.
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Lending institutions that provide funding support to specific sectors are in agreement with the CGTMSE scheme. The entities and institutions that are eligible to avail business loans under the CGTMSE scheme are as follows:
- All Existing and New Micro and Small Enterprises (MSEs)
Lending Institutions offering funds under CGTSME Scheme
- Scheduled Commercial Banks (SCBs)
- Regional Rural Banks (RRBs)
- Small Finance Banks (SFBs)
- Non-banking Financial Companies (NBFCs)
- Small Industrial Development Bank of India (SIDBI)
- National Small Industries Corporation (NSIC)
- North Eastern Development Finance Corporation Ltd. (NEDFi)
Small and Micro-Enterprises owned and/or operated by Women Entrepreneurs are eligible for a Guarantee Cover of 80%, whereas all the credit/loans in the North East Region (NER) for credit facilities are eligible for a guarantee of Rs. 50 lakh.
Note: Educational institutions, agriculture, training institutions, and Self-Help Groups (SHGs) are not eligible for guarantee cover under CGTMSE. The CGTMSE loan limit solely depends on the applicant’s profile and business requirements.
Any collateral / third party guarantee free credit facility in form of both fund-based and non-fund based) offered by eligible institutions to new and existing Micro and Small enterprises, including Service Enterprises, with a maximum credit cap of Rs. 2 crores are eligible to be covered.
CGTMSE Coverage Criteria:
a) The trust guarantees up to 75% of the defaulted principal amount (up to 85% of the defaulted principal amount for a select category of borrowers). The cover comes with a maximum guarantee cap of Rs. 37.50 lakh for the credit facilities up to Rs. 50 lakh.
b) The term credit including interest on the principal is covered for a period of one-quarter and/or outstanding capital advances including the interest, as on the date of the account becoming a Non-Performing Asset (NPA) or as on the date of filing the suit (whichever is lower).
c) Other charges, such as penal interest, commitment charge, service charge, or any other levy/ expenses do not qualify for the guarantee cover.
Below mentioned is the detailed information on the coverage limit under CGTMSE:
Modified AGF Structure – Standard rate (SR)
|Annual Guarantee Fee (AGF) [% p.a.]*|
|Women, Micro Enterprises and Units covered in North East Region|| |
|Up to Rs. 5 Lakh||1.00 + Risk Premium as per extant guidelines of the Trust|
|Above Rs. 5 Lakh and up to Rs. 50 Lakh||1.35 + Risk Premium as per extant guidelines of the Trust||1.50 + Risk Premium as per extant guidelines of the Trust|
|Above Rs. 50 Lakh and up to Rs. 200 Lakh||1.80 + Risk Premium as per extant guidelines of the Trust|
*AGF will be charged on the guaranteed amount for the first year and on the outstanding amount for the remaining tenure of the credit facility.
Documents required for loan application
Below stated are the documents required for a Loan under the CGTMSE scheme and its coverage:
- Duly filled CGTMSE loan application form with passport-sized photographs
- Business Incorporation or Company Registration Certificate
- Business Project Report
- CGTMSE Loan Coverage Letter
- Copy of loan approval from the Bank
- Any other document required by the Bank
CGTMSE also provides rehabilitation assistance to the business units. If a business unit is in a bad condition due to factors that are beyond the control of the management, then CGTMSE covers the loan for rehabilitation extended by the lender within the credit cap of Rs. 1 crore.
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Steps to avail Loan under the CGTMSE Scheme
The objective of the CGTMSE is to enable the banks to look at small and micro businesses with objectivity and give more importance to the project viability and business model validation. To cover the loan under the credit guarantee fund scheme, the borrower has to pay an additional guarantee fee and service charge in addition to the interest charged by the bank. The current CGTMSE fee is payable at the rate of 1.5%. It is payable at 0.75% for the North-Eastern region including the state of Sikkim.
The procedure for getting a loan under CGTMSE is as follows:
Step 1. Formation of the Business Entity
Before even starting the procedure for loan approval under the CGTMSE, the borrower has to incorporate a private limited company, limited liability partnership, one-person company, or a proprietorship according to the nature of the business and obtain necessary approvals and tax registrations for executing the project.
Step 2. Preparing a Business Report
Borrowers need to conduct a market analysis and prepare a business plan containing relevant information, such as business model, promoter profile, projected financials, etc. The report is then presented to the credit facility and an application is filed for getting the loan under the CGTMSE scheme. However, businesses should consider that such project reports be prepared by experienced professionals. This shall increase the chances of approval.
Step 3. Sanctioning of Loan from the Bank
The request for a bank loan usually contains credit terms and working capital facilities. After the application and business plan are under process, banks carefully analyze the viability of the business model and process the loan application, and accord sanction, as per the bank’s policy.
Step 4. Obtaining the Guarantee Cover
After the loan is sanctioned the bank applies to CGTMSE authority and obtains the guarantee cover. If the loan is approved by CGTMSE, the borrower will have to pay the guarantee fee and service charges. The CGTMSE loan application form can be downloaded from its official website.
The extended list of MLIs under the CGTMSE scheme contains 141 banks including all the major rural, urban, public sector, and private sector banks of India. The list contains some of the larger banks, such as the State Bank of India, United Bank of India, Punjab National Bank, etc.
Note: CGTMSE does not grant any loan, credit facilities, or subsidies and nor does it have any Loan Agents, Agencies for arranging loans, or credit guarantees offered via its MLIs.
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Claim Settlement Procedure
After the disbursal of the final part of the loan amount, there is a lock-in period of 18 months for a preferred claim. The lender shall prefer a claim once the defaulted account has been notified as an NPA. The commencement of recovery proceedings after the account is called an NPA is known as the CGTMSE claim settlement procedure.
CGTMSE Achievements (FY 2020-2021)
|Guarantees Approved||Rs. 45,851 crore|
|Guarantees Approved for 23 New Registered NBFCs||Rs. 17,349 crore|
|Growth in coverage in terms of the amount||52%|
|Growth in new products – Retail & Hybrid||Rs. 16,103 crore|
Source: www.cgtmse.in, numbers updated as on May 2022.
Toll-Free Number – 1800-222-659 / (022)-6722-1553
Q. What is the lock-in period in CGTMSE?
A. The lock-in period in CGTMSE is for 18 months.
Q. Which institutions are eligible to offer loans under this scheme?
A. All scheduled MLIs, including PSUs, private and foreign banks in addition to selected regional and rural banks and any other bank directed by the Government of India can avail the guarantee cover under the scheme.
Q. Is Mudra loan covered under the scheme?
A. No, the Mudra loan is not covered under the CGTMSE scheme.
Q. When can the eligible lending institutions apply for guarantee cover in respect of eligible credit facilities under the scheme?
A. Eligible lending institutions have to enter into a one-time agreement with CGTMSE for becoming MLIs of the trust. MLIs then can apply for a guarantee cover in respect of the eligible credit facility sanctioned to an eligible borrower. The MLIs can apply for a guarantee cover in respect of the credit proposals sanctioned in the quarter of April-June, July-September, October-December, and January-March before the quarter ends.
Q. Are small road transporters and water transporters eligible for cover under the scheme?
A. Yes, they are. Small road and water transport loans that are approved by MLIs are eligible for cover under this scheme. All small business owners in this industry who are seeking a loan can request the lender to add the CGTMSE cover to their loan applications.
Q. Is it compulsory for the borrower to obtain IT-PAN to become an eligible borrower?
A. Yes, the borrower is required to obtain IT-PAN before availing facility from the MLI. Also, under section 139A(5) and section 272C of the Income Tax Act, 1961.
Q. Is it necessary for the borrower to obtain all the credit facilities from a single MLI?
A. Credit facilities can be extended through more than one MLI jointly and/or separately to any eligible borrower with a maximum cap of Rs. 200 lakh per borrower.
Q. Is co-financing with a commercial bank covered under the CGTMSE scheme?
A. Joint financing by a financing institution and a commercial bank can be covered under the scheme. For instance, an MSE unit can borrow through a term loan from a state financial institution and take working capital funding from a commercial bank.
Q. Can term loan or working capital alone be extended by an eligible lender and still be covered under the guarantee scheme?
A. Any eligible lender can extend either term loan or working capital facility alone and still be eligible for the guarantee cover under the scheme.
Q. Can the annual guarantee fee be paid even after the lodgment of the claim?
A. Annual guarantee fee can be paid even after the lodging of the claim but it has to be settled before the first installment of 75% of the guaranteed amount. However, one cannot lodge any claim before the expiry of the initial lock-in period and after the expiry of the tenure of guarantee cover.