Availability of bank credit without the hassles of collaterals / third party guarantees would be a major source of support to the first-generation entrepreneurs to realize their dream of setting up a unit of their own Micro and Small Enterprise (MSE). Keeping this objective in view, Ministry of Micro, Small & Medium Enterprises, Government of India launched Credit Guarantee Scheme (CGS) to strengthen the credit delivery system and facilitate the flow of credit to the MSE sector. To operationalize the scheme, the Government of India and SIDBI set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

• Is the scheme collateral-free for the borrower up to Rs 2 crore?

Ans: Yes, Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) operates the Credit Guarantee Scheme for MSEs in respect of credit facilities up to Rs. 200 lakh, extended by Member Lending Institutions (MLI), which are not backed by collateral security and/or third-party guarantees.

• Which MSEs are eligible under this scheme?

Ans: All enterprise / industrial undertakings or business concerns or any other establishments, engaged in manufacturing or providing or rendering of any service or services; and are “Micro and Small Enterprises” as defined in the MSME Development Act are eligible under this Scheme.

• Who can sanction this loan under this scheme?

Ans: The Scheme is operated through MLIs which includes Public Sector Banks, Private Banks, Regional Rural Banks, Financial Institutions, Foreign Banks, Small Finance Banks, Scheduled Urban Co-operative Banks and Non-Banking Financial Companies. More than 100 MLIs are registered with CGTMS and MLIs sanction loans based on their internal credit guidelines and accordingly take credit decisions.

• Is there a maximum interest rate that can be levied under this scheme?

Ans: Any credit facility which has been sanctioned by the MLI with the interest rate charged as per the RBI guidelines would be eligible for coverage under the Credit Guarantee Scheme.

• For credit facilities above 50 lakh up to 200 lakh, 75 percent of the loan amount, up to a maximum of Rs 1.5 crore will be guaranteed by the government. Is that correct?

Ans: As per the Guarantee Scheme, the eligible default amount is shared between CGTMSE and the lending institution as per the extent of the guarantee.  Hence, for any credit facility covered as per the criteria given in the above query, 75% of the eligible default amount is covered by CGTMSE and the remaining 25% by the lending institution.

• Can the loan be sanctioned without a personal guarantee from the promoters?

Ans: MLIs sanction credit facilities/loans based on their internal credit guidelines and accordingly take credit decisions including the stipulation of Personal Guarantee.