The Credit Guarantee Scheme for Startups (CGSS) has been established by the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry (MoCI), to offer startups collateral-free loans up to a specified limit.
- These loans are provided by Member Institutions (MIs), which include Scheduled Commercial Banks (SCBs), Non-Banking Financial Companies (NBFCs), and Alternative Investment Funds (AIFs) registered with the Securities and Exchange Board of India (SEBI).
- These are financial intermediaries that engage in lending/investing and fulfill the criteria for eligibility under the Scheme.
The scheme will serve as a significant facilitator and risk reduction mechanism for lending institutions, helping startups to receive collateral-free loans.
Credit Guarantee Scheme for Startups (CGSS)
i.The intention of the CGSS is to provide credit guarantees up to a specific limit against loans issued by MIs to finance eligible borrowers, i.e startups as defined in the Gazette Notification issued by DPIIT and amended from time to time.
- CGSS will complement the existing Startup India initiative, Fund of Funds for Startups and Startup India Seed Fund Scheme, with the goal of mobilizing domestic capital for Indian startups.
ii.Under the scheme, the credit guarantee coverage would be transaction-based and umbrella-based.
- The exposure to individual cases would be limited to Rs. 10 crore per case or the actual outstanding credit amount, whichever is lesser.
- The MIs get the guarantee cover on the basis of a single eligible borrower for transaction-based guarantee cover.
iii.Transaction-based guarantees will encourage lending by Banks/ NBFCs to eligible startups.
iv.The umbrella-based guarantee cover would give guarantees to Venture Debt Funds (VDF) established under SEBI’s AIF regulations (a rising area of funding in the Indian startup ecosystem), based on the nature of the funds collected and debt financing provided by them.
- The amount of umbrella-based cover will be the actual losses or up to 5% of the Pooled Investment in eligible startups on which cover is being taken from the fund, whichever is less, subject to a maximum of Rs. 10 crore per borrower.
Key Points:
i.A Management Committee (MC) and a Risk Evaluation Committee (REC) will be established by DPIIT together with institutional mechanisms for operationalizing the CGSS Scheme for the purposes of reviewing, supervising, and operational oversight.
ii.The CGSS Scheme will be administered by the National Credit Guarantee Trustee Company Limited (NCGTC).
Note: On January 16, 2016, Prime Minister Narendra Modi unveiled the Startup India Action Plan, intended to develop a robust startup ecosystem in India.
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About Ministry of Commerce and Industry (MoCI):
Union Minister– Piyush Goyal (Rajya Sabha – Maharashtra)
Ministers of State (MoS) – Anupriya Patel; Som Parkash
