CGS: Credit Guarantee Scheme for MSMEs

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The government has announced an additional funding of Rs 3 lakh crores to revive the MSMEs through a credit guarantee scheme. Based on the eligibility conditions, MSMEs can avail loans up to 20% of their outstanding credit. These loans are collateral-free and can be availed at discounted interest rates.

On May 13, 2020, the Prime Minister in his address to the nation announced the measures to revive the Indian economy. He underlined that a self-reliant economy was the key to accelerated growth while announcing a Rs. 20 lakh crore comprehensive package for revival and growth. This package encompassed a series of measures for MSMEs, including credit guarantee scheme for MSMEs.

On May 20, the Union Ministry of Finance announced that an additional funding of Rs. 3 lakh crore would revive the Micro, Small and Medium Enterprises (MSMEs). This fund would be provided at discounted interest rates to ailing MSMEs under the Emergency Credit Line Guarantee Scheme (ECLGS). As part of the comprehensive economic package, this credit guarantee scheme is expected to revive the MSMEs hit hard by the pandemic and the subsequent lockdown. According to the union ministry of finance, the credit guarantee scheme for MSMEs is expected to help businesses in more than 45 lakh MSMEs across the country.

Key Features of the Credit Guarantee Scheme for MSMEs

Collateral-free Loans at Discounted Interest Rates: As part of the credit guarantee scheme, nationalized banks would provide emergency credit to the MSMEs at the rate of 9.25%, while Non-Banking Finance Companies (NBFCs) would provide collateral-free credit facilities at the rate of 14%. This would considerably help the MSMEs as the existing rate of interest by banks to MSMEs is between 11% and 16%, while those by NBFCs ranges from 10% to 30%.

Government Guarantee for the Loans: The National Credit Guarantee Trustee Company Limited (NCGTC) would provide a complete credit guarantee to the borrowing MSMEs under the credit guarantee scheme for MSMEs.

Credit Limit for MSMEs: The ailing MSMEs can avail loans up to 20% of their outstanding credit for their working capital requirement, or as additional term loans.

Eligibility for the Credit Guarantee Scheme: Those MSMEs which have an annual turnover of up to 100 crore, besides an outstanding credit of up to Rs. 25 crore on February 29, 2020, are eligible to receive credit under the scheme.

Moratorium on the Loan: Under the credit guarantee scheme, the MSMEs will have a moratorium of 12 months on the principal amount. The loan must be repaid within 4 years thereafter.

Funds for the Scheme: The centre would establish a Guaranteed Emergency Credit Line (GECL) with a corpus of Rs. 41,600 crore – spread over 4 years from the present financial year.

Timeline for the Credit Guarantee Scheme: Whichever is earlier: from announcement date till October 31, 2020, or until GECL sanctions the full amount of the scheme, would constitute the starting and end date for the scheme.

Change in Definition of MSMEs: To allay the fear of MSMEs with increased production who would fall beyond the ambit of being defined as MSMEs, the Finance Ministry also changed the definition of MSMEs. The new definition is as follows:

Micro Enterprises: Investment limit is capped at Rs 1 crore, with a maximum turnover of up to Rs 5 crore.
Small Enterprises: Investment limit of Rs 10 crore with turnoverapped at Rs 50 crore.
Medium Enterprises: Companies and firms with a maximum investment of Rs 20 crore along with a turnover capped at Rs 100 crore.

Understanding the Role of MSMEs in Indian Economy

MSMEs play a crucial role in the economy by generating employment and through vibrant production. The goal of a self-reliant economy, as ushered in by the government, cannot be achieved without revamping and boosting the MSMEs. With the credit guarantee scheme, it is expected that the MSMEs will meet their working capital requirements and start their business activities.

MSME Loan Eligibility

You can now easily apply for MSME business loan, available on Bajaj Markets, which comes with simple eligibility conditions and minimal documentation.

You must be in the age group of 25-55 years, with a minimum CIBIL score of 750. Remember, a good Credit score reflects your credit worthiness. You must also not have any past record of a loan default. Besides filing income tax returns for at least 1 year, your business should be more than 3 years old.

Thus, the credit guarantee scheme is a measure to revive MSMEs, the backbone of the Indian economy. You can easily avail a loan for your MSME, available on Bajaj Markets, You get a multitude of benefits, like quick online processing, zero collateral, high loan limit upto Rs. 30 Lakhs and a longer repayment tenure of between 12 and 60 months. While the loan can be approved within 3 minutes, the amount will be disbursed in your account within 24 hours of approval.

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Assam Government Introduces Credit Guarantee Scheme to Its MSMEs

The Assam government inaugurated the Assam Credit Guarantee Scheme (ACGS or Assam CGS) to make sure that small businesses in Assam can access credit facilities without any collateral. The government of Assam has tied up with Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) that is jointly established by Small Industries Development Bank of India (SIDBI) to increase credit flow to MSMEs in the state. The scheme is similar to the Credit Guarantee Scheme, the only difference being 100% guarantee coverage to MSMEs.

- June 15, 2023