The Credit Guarantee Fund Scheme for Micro and Small Enterprises was launched by the Government of India to make available collateral-free credit to the micro and small enterprise sector. One of the major causes for low availability of bank finance to this sector is the high risk perception of the banks in lending to MSEs and consequent insistence on collaterals which are not easily available with these enterprises. The scheme was formally launched on August 30, 2000.
Who are eligible?
The scheme is applicable for new and existing Micro and Small Enterprises engaged in manufacturing or service activity excluding retail trade, educational institutions, agriculture, self-help groups (SHGs), training institutions, etc.
Benefits:
1. Both term loans and/or working capital facility up to Rs.100 lakh per borrowing unit, are being provided without any collateral security and / or third party guarantee, to a new or existing micro and small enterprise.
2. The guarantee cover provided is up to 75% of the credit facility up to Rs.50 lakh (85% for loans up to Rs. 5 lakh provided to micro enterprises, 80% for MSEs owned/ operated by women and all loans to NER including Sikkim) with a uniform guarantee at 50% for the entire amount if the credit exposure is above Rs.50 lakh and up to Rs.100 lakh.
3. In case of default, Trust settles the claim up to 75% (or 85% / 80% / 50% wherever applicable) of the amount in default of the credit facility extended by the lending institution.
Tenure of Guarantee:
The Guarantee cover under the scheme is for the agreed tenure of the term loan/composite credit. In case of working capital, the guarantee cover is of 5 years or block of 5 years.
Fee for Guarantee:
A composite all-in Annual Guarantee Fee of 1.0 % p.a. of the credit facility sanctioned (0.75% for credit facility upto Rs. 5 lakh and 0.85% for above Rs. 5 lakh and upto 100 lakh for Women, Micro Enterprises and units in NER including Sikkim) is now being charged.
How to seek guarantee?
Credit guarantee fund trust for micro and small enterprises (CGTMSE) gives guarantee to its member lending institutions ( MLIs). Therefore, entrepreneurs in the Micro and Small Enterprises sector have to approach the Banks or financial institutions (who have already registered with the Trust as MLIs) with their viable proposals for their credit requirements.
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