The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) increased the guarantee coverage ceiling under its Credit Guarantee Fund Scheme for MSEs from Rs 2 crore to Rs 5 crore per borrower for credit facilities extended by lending institutions to Micro and Small Enterprises (MSEs).
- Objective: To encourage the public and private sector banks, Member Financial Institutions and foreign banks to step up loans to MSEs.
Backdrop: In Union Budget 2023-24, Union Finance Minister Nirmala Sitharaman announced the revamping of the Credit Guarantee Scheme for MSEs with effect from April 01, 2023.
Key Points:
i. The changes are made with respect to the reduction in the loan growth to the MSE segment to 13.2% year-on-year (y-o-y) (as on February 24, 2023) from 24% y-o-y (as on February 25, 2022).
- The changes are effective from April 1, 2023.
ii.Threshold for waiver of legal action was enhanced to Rs10 lakhs from the existing Rs 5 lakhs.
iii.The scheduled commercial banks’ credit to MSEs, as on February 24, 2023, stood at Rs 5,87,494 crore compared with Rs 5,18,873 crore as on February 25, 2022.
iv.The reduction was made in the annual guarantee fee (AGF), which is used to be passed on to the borrowers.
- For loans up to Rs 10 lakh, the AGF reduced to 0.37% from 0.75% and for loans above Rs 10 lakh up to Rs 50 lakh it was reduced to 0.55% from 1.10%.
- The AGF for loans above Rs 50 lakh up to Rs 1 crore is 0.60%, it was about 1.20% for Rs 1 crore up to Rs 2 crore loans and for loans above Rs 2 crore up to Rs 5 crore it is 1.35%.
Note – Previously, there exist a single slab of Rs 50 lakh up to Rs 2 crore loans for which the AGF was 1.20%.
v.Thus now due to the rise of the threshold, credit could be available to MSEs for loans up to Rs 5 crore without collateral/third-party guarantees (which was earlier applicable only up to Rs 2 crore loans).
About Credit Guarantee Fund Scheme for MSEs:
i.The Ministry of MSMEs and Small Industries Development Bank of India (SIDBI), established a Trust named CGTMSE to implement the Credit Guarantee Fund Scheme for MSEs.
ii.The scheme was formally launched on August 30, 2000 by the Government of India to make available collateral-free credit to the MSEs and is operational with effect from 1st January 2000. The corpus of CGTMSE is being contributed by the Government and SIDBI in the ratio of 4:1 respectively.
iii.The Scheme covers collateral-free credit facility (term loan and/ or working capital) extended by eligible lending institutions to new and existing MSEs up to the borrowing limit (which was now increased to Rs 5 crore)
iv.The credit guarantee scheme assures a lender that if an MSE unit that has availed itself of collateral-free credit facilities (fund-based and/or non-fund based) fails to discharge its liabilities, then the trust would make good the loss to the tune of 75-85 per cent of the credit facility.
Note – The corpus of CGTMSE was infused with a sum of Rs. 8,000 crore on 30 March 2023.
About Ministry of Micro, Small and Medium Enterprises:
Union Minister – Narayan Tatu Rane (Rajya Sabha Maharashtra)
Minister of State (MoS) – Bhanu Pratap Singh Verma (Constituency- Jalaun,Uttar Pradesh)
