What is CGTMSE?

The Ministry of Micro, Small, and Medium Enterprises, Government of India and SIDBI (Small Industries Development Banks of India) launched a trust by the name of CGTMSE on August 20, 2000. CGTMSE full form is Credit Guarantee Fund Trust for Micro and Small Enterprises.


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What is a Credit Guarantee Under CGTMSE?

The CGTMSE stands for Credit Guarantee Fund Trust for Micro and Small Enterprises. Under this scheme, the loan provided to the applicant is backed by a party without asking for a collateral or third-party guarantee to lenders.

There is a team of lending institutions which provide guarantee cover for a large portion of the loan amount. Under the CGTMSE scheme, MSMEs both new and old including service enterprises are eligible for a maximum credit cap of Rs. 2 crores.

The main objective of the CGTMSE scheme is to give a credit guarantee to the institutions that provide business loans to MSMEs.

Features of CGTMSE Loan

New small businesses are encouraged to apply for the CGTMSE loan as part of the scheme. Under the scheme, financial institutes will be compensated (up to a certain limit) if borrowers default on their loans.

The following are the features of the schemes:

Interest Rate    Flexible depending on business requirements
Guarantee for credit facilities    Without collateral or guarantee by third parties
Eligible Entities    Manufacturing and Services Businesses up to Rs. 2 crores, Retail Merchants up to Rs. 1 crore.
Guaranteed Coverage    Up to 75% of loan/limit not secured by collateral
Loans can be availed from      NBFCs, Regional Rural Banks, Small Finance Banks, as well as institutions such as SIDBI, NSIC, NEDFI, etc.

Documents required for Loan under CGTMSE Scheme

Below stated are the documents required for a loan under the CGTMSE scheme and its coverage:

  • CGTMSE loan application form
  • Passport-sized photographs
  • Business Plan
  • Business incorporation letter
  • Company registration certificate
  • Business Project Report
  • CGTMSE Loan Coverage Letter
  • Copy of loan approval from the bank

What is the CGTMSE Claim Settlement Procedure?

After the loan sanctioned, there is an 18 months lock-in period to claim. The bank and lender can claim one of the default accounts notify as an NPA. CGTMSE claim settlement procedure is where a lender tries to recover the loan amount.

CGTMSE Scheme Eligibility Criteria

The following is the eligibility criteria to avail CGTMSE loan:

Lending Institutions: all scheduled commercial banks, regional banks (specified), NSICs, NEFDi, and SIDBIs are considered eligible. The institutions entering into an agreement with the scheme are called MLIs – Member Lending Institutions.

Eligible Borrowers: all MSMEs are eligible for credit guarantee under the following conditions:

The CGTMSE guarantees 75% reimbursement of the defaulted amount (85% in some cases). The maximum cap for this is Rs. 37.50 lakh for loans up to Rs. 50 lakh. The term credit includes interest on the principal amount for a period of one-quarter or outstanding capital advances (including interest) on the date the account becomes NPA (Non-Performing Asset) or the date of filing suit, the one which is lower.

Additional charges, such as penal interest, service charge, commitment charge, etc. do not qualify for the guarantee.

SMEs owned and operated by women entrepreneurs are also eligible for a guarantee cover of 80%. And loans availed in North East Region are eligible for guarantee cover of Rs. 50 lakhs.

Businesses in retail trade, agriculture, educational and training institutions, and Self-Help Groups are not eligible for CGTMSE coverage.

How to Avail a Loan Under CGTMSE?

The primary objective of the scheme is to bring lending institutions’ notice to the MSMEs and provide them with financial help. Notably, the business owner has to pay an additional fee and service charge to avail of the guarantee scheme, in addition to the interest cost on the loan amount.

The current guarantee fee is 1.5% and 0.75% for the North East Region (including Sikkim). The following are steps to avail a loan under CGTMSE loan scheme:

Business Entity Formation: the borrower first has to incorporate a private limited company, one person company, proprietorship, or a limited liability company and obtain all the necessary approvals and tax registrations for it.

Business Plan: here, the business owner needs to conduct a market analysis to prepare a business plan with relevant information, such as promoter profile, business model, projected financials, etc. The report has to be presented to the credit facility along with a loan application filled duly to avail a loan under the CGTMSE scheme. However, it is recommended to get the reports prepared by experienced professionals as this would increase the chances of loan approval.

Business Loan Sanction: once the business report and plan is under review, the lender analyses the feasibility of the business as per his policy. If everything seems fine, the loan application is approved, and the loan is sanctioned.

Request to Trust for Cover: after sanctioning the loan, the lender applies for CGTMSE cover and obtains it. If CGTMSE approves the business loan, the business owner will have to pay the guarantee fee and service charges.

The list of MLIs under the Credit Guarantee Fund Scheme for Micro and Small Enterprises contains 131 banks including rural and urban banks and public and private sector banks of India. The list contains some larger banks as well, like Union Bank of India, State Bank of India, Punjab National Bank, United Bank of India, etc.

What is CGTMSE Coverage?

To run the scheme smoothly, the Government of India and SIDBI set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). CGTMSE has introduced a new "Hybrid Security" product allowing guarantee cover for the portion of credit facility not covered by collateral security.

CGTMSE Toll-Free Number – 1800-222-659/ (022)-6722-1553

Advantages of CGTMSE Coverage

MSMEs are an integral part of the country’s economy as they contribute significant numbers to India’s GDP. Besides, they also provide job opportunities to over 7 crore people. However, despite their efforts and significant contributions, they find it hard to get business loans. Lending institutions stay away from lending money to small businesses due to high NPA rates in small businesses.

CGTMSE plays a crucial role to help small businesses counter this situation. It shares the risk factor bringing relief to both the lending institution and borrowers. The scheme offers various advantages to new and existing MSMEs. The major advantage is that an individual can avail credit facility, even if he has no or minimum business experience. However, the cover is optional.

How to Apply for a CGTMSE loan scheme?

Here are the steps to follow to avail CGTMSE loan:

  • Step 1 - Form the business organization - Get necessary licenses and permissions from the respective Govt. authority, etc.
  • Step 2 - Prepare the Project Report or Business Plan - To get a bank loan approved under this scheme you must submit a full-proof project report with market analysis, ROI, Break-Even and Payback calculations.
  • Step 3 - Apply for the sanction of Bank Loan - After getting the project report, you can apply for the loan. You should talk with at least 2-3 banks nearby.
  • Step 4 – Get Coverage under CGTMSE Scheme - After getting the sanction of the loan, the bank will apply for the subsidy to the CGTMSE organization. Before a bank approves your loan under CTGMSE they will need to submit several documents. After the approval, you have to pay the CGTMSE guarantee and service fee if any.

CGTMSE Application:

If a lender is sanctioned for credit, he or she must apply for the credit. Terms and conditions are:

  1. By the end of the calendar quarter of the subsequent calendar year.
  2. The guarantees start the day the CGTMSE fee is paid.
  3. In the case of term and composite loans, the cover shall continue for the agreed-upon period.
  4. The CGTMSE shall cover the Working Capital Loan for a period of 5 years or any other period specified by the borrower.

Interest Rates offered by Banks on Loans under CGTMSE Scheme

According to the Credit Guarantee Scheme, the bank's interest rate depends on the applicant's profile, business requirements, and project cost. As compared with other direct loans, banks offer a very low-interest rate. The coverage offered by Credit Guarantee is capped at 75% of the total project cost.

CGTMSE Achievements FY 2020-2021

Guarantees Approved    Rs. 45851 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

Credit Guarantee

Any collateral / third party guarantee free credit facility (both fund as well as nonfund based) extended by eligible institutions, to new as well as existing Micro and Small Enterprise, including Service Enterprises, with a maximum credit cap of  200 lakh (Rupees Two Hundred lakh only) are eligible to be covered. Recently, guarantee coverage made eligible to select NBFCs and Small Finance banks.

The guarantee cover available under the scheme is to the extent of 50%/ 75% / 80% & 85% of the sanctioned amount of the credit facility. The extent of guarantee cover is 85% for micro-enterprises for credit up to  5 lakh. The extent of guarantee cover is 50% of the sanctioned amount of the credit facility for credit from  10 lakh to  100 lakh per MSE borrower for retail trade activity.

The extent of guarantee cover is 80%(i) Micro and Small Enterprises operated and/or owned by women; and (ii) all credits/loans in the North East Region (NER) for credit facilities up to  50 lakh. In case of default, Trust settles the claim up to 75% of the amount in default of the credit facility extended by the lending institution for credit facilities up to  200 lakh.

CategoryMaximum extent of Guarantee where credit facility is
Up to 5 LakhAbove 5 lakh up to 50 lakhAbove 50 lakh up to 200 lakh
Micro Enterprises85% of the amount in default subject to a maximum of  4.25 lakh75% of the amount in default subject to a maximum of  37.50 lakh
75% of the amount in default subject to a maximum of  150 lakh
Women entrepreneurs/ Units located in North East Region (incl. Sikkim) (other than credit facility up to  5 lakh to micro-enterprises)
80% of the amount in default subject to a maximum of  40 lakh 
All other categories of borrowers75% of the amount in default subject to a maximum of  37.50 lakh
ActivityFrom 10 lakh up to 100 lakh
MSE Retail Trade50% of the amount in default subject to a maximum of  50 lakh

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