The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is a joint initiative by the Ministry of Micro, Small & Medium Enterprises (MSME), the Government of India, and the Small Industries Development Bank of India (SIDBI).
Launched in 2000, the CGTMSE scheme offers credit guarantees ranging from 75%-85% to Micro and Small Enterprises (MSEs) across the country.
What is a credit guarantee? A credit guarantee is a financial arrangement where a third party, often a government-backed entity like CGTMSE, provides a guarantee to a lender for a portion of the loan extended to a borrower.
The purpose of a credit guarantee is to mitigate the risk for lenders, encouraging them to extend credit to borrowers who might not have sufficient collateral or a strong credit history.
The primary objective of CGTMSE is to create a credit relief system that promotes improved credit access for MSEs.
Key features of CGTMSE include:
Credit Guarantees: CGTMSE provides credit guarantees to financial institutions, backing a substantial portion of the loan for MSEs.
Loan Eligibility: New and existing MSMEs are eligible to avail of a credit facility up to ₹2 crore.
Guarantee Cover: Under CGTMSE, guarantee cover is provided for credit facilities sanctioned without any collateral, up to a limit of ₹500 lakh.
One-Time Guarantee Fee: For loans up to ₹5 lakh, the one-time guarantee fee is 1%, and the annual service fee is 0.5%.
Interest: The interest rate for a CGTMSE loan varies from lender to lender. However, the majority of the lenders recover the CGTMSE loan interest rate that does not exceed 14% to 18% including the guarantee cover. It is important to note that CGTMSE does not provide any financial assistance. It only gives guarantees for the collateral or third-party security
Awareness Programs: CGTMSE has adopted a multi-channel approach for creating awareness about its guarantee scheme among banks, MSE associations, entrepreneurs, and other stakeholders through print and electronic media, training colleges, and multimedia CD-ROMs.
Overall, CGTMSE plays a crucial role in supporting the growth and development of micro and small enterprises by making it easier for them to access credit from formal financial institutions.
The credit guarantee provided by CGTMSE reduces the risk for lenders, encouraging them to extend financial support to a sector that is vital for economic development and employment generation.
Ahead of the Interim Budget 2024 presentation, Hardika Shah, Founder & CEO, Kinara Capital has said that some of the key areas that require immediate attention and can have a profound impact on the MSME sector are, reinstating the tax rebate for Foreign Portfolio Investors (FPIs) and removing the cap on the CGTMSE Scheme to enable last-mile MSME financial inclusion.
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