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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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.
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. |
Below stated are the documents required for a loan under the CGTMSE scheme and its coverage:
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.
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.
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
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.
Here are the steps to follow to avail CGTMSE loan:
If a lender is sanctioned for credit, he or she must apply for the credit. Terms and conditions are:
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.
| 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 |
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.
| Category | Maximum extent of Guarantee where credit facility is | ||
| Up to 5 Lakh | Above 5 lakh up to 50 lakh | Above 50 lakh up to 200 lakh | |
| Micro Enterprises | 85% of the amount in default subject to a maximum of 4.25 lakh | 75% 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 borrowers | 75% of the amount in default subject to a maximum of 37.50 lakh | ||
| Activity | From 10 lakh up to 100 lakh | ||
| MSE Retail Trade | 50% of the amount in default subject to a maximum of 50 lakh | ||
Additional Helpful Resources in Hindi:
Who is eligible for CGTMSE?
Under the scheme, the member lending institution which can be an NBFC also, who lend to the SME and MSME sector are eligible for a maximum credit cap of Rs. 2 crores, which in any case is meant to cover a large proportion of the loan amount.
What is CGTMSE Full form?
The full form of CGTMSE is Credit Guarantee Fund Trust for Micro and Small Enterprises that provides funding to financial institutions to further help SMEs and MSMEs in offering credit or loan products and services.
How is the CGTMSE fee calculated?
The borrower has to pay an annual Guarantee Fee of 1% p.a. of the credit facility availed, of which 0.75% is paid for credit of up to ₹ 5 Lakh and 0.85% for loan above ₹ 5 Lakh but up to ₹ 1 Cr In case of women and Micro Enterprises and units in NER, CGTMSE fee is charged for credit up to ₹ 1 Cr.
What is the maximum loan amount that can be covered under the guarantee of Cgtmse?
Maximum of credit risk borne by CGTMSE is restricted to 150 lakh i.e. 75% of the amount in default.
What is the CGTMSE fee?
The fees charged by the trust fund is a percentage of 1% p.a of the amount so sanctioned: 1. 0.75% – for credit of up to Rs. 5 Lakhs.
What is lock in period in CGTMSE?
The lock-in period of 18 months either from the date of last disbursement of credit to the borrower or from the date of the guarantee cover coming into force in respect of the particular credit facility, whichever is later.
Which lending institutions are eligible to become MLIs in the scheme?
All scheduled banks, private banks, foreign banks, rural banks, urban banks, or other banks directed by the Indian government are eligible to become MLIs under the scheme. However, Regional Rural Banks (RRBs) have to fulfil the different eligibility criterion. RRBs which are classified by NABARD under the sustainable and currently viable category with positive worth are also eligible for CGTMSE guarantee cover.
Are water and road transporters eligible for cover under the scheme?
Yes, water and road transporters are eligible to get cover under the CGTMSE scheme and a business loan from MLIs. All small businesses running in the country and seeking a loan for business can ask the lender to add CGTMSE cover to their small business loan application.
Is having a PAN compulsory to become eligible for the loan scheme?
Yes, the borrower needs to have PAN Card to avail the lending facility from the MLI. Also, as per the section 139A (5) and 272C of the Income Tax Act, 1961, it is mandatory to have PAN card on all tax documents, including loan, returns, appeals, challans, etc. However, for other types of loan, it is not compulsory to have PAN in all loan applications.
Can one obtain a credit facility from more than one MLI?
The credit facility can be extended from more than one MLI. You can apply for the facility from two or more MLIs jointly or separately from all MLIs. However, the maximum cap is Rs. 100 lakh per borrower.
