The Government of India established the Credit Guarantee Funds Trust for Micro and Small Enterprises (CGTMSE) under the Ministry of Micro, Small and Medium Enterprises (MoMSME) and the Small Industries Development Bank of India (SIDBI). CGTMSE was founded in 2000 to give credit guarantees to financial institutions that lend to SMEs. The CGTMSE provides a guarantee to lending institutions for all loans to the MSME sector up to a specific amount.
The documents required for a loan under the CGTMSE plan, as well as their coverage, are listed below:
CGTMSE loan application form filled out completely with passport-size photos
Business Project Report, Business Incorporation or Company Registration Certificate
CGTMSE Loan Coverage Letter Copy of the Bank's Loan Approval
The CGTMSE also assists the business units with recovery. If a business unit is in terrible shape due to circumstances beyond the management's control, the CGTMSE will reimburse the lender's rehabilitation loan up to a credit limit of Rs. 1 crore.
The full form of CGTMSE is Credit Guarantee Fund Trust for Micro and Small Enterprises.
Fee is 0.50 percent of the guarantee amount for credit facilities up to Rs.5 lakh.
Credit facility ranging from Rs.5 lakh to Rs.1 crore: 0.75 percent of the guarantee amount is charged as a fee.
There is an 18-month lock-in period for preference claims after the final tranche of the loan is disbursed. On the other hand, the lender will prioritise the claim once the defaulted account has been designated as a non-performing asset (NPA) and recovery proceedings have begun through the filing of a lawsuit.
Banks that provide financial support to any specific sector provide loans under the CGTMSE. Regional Rural Banks, Small Finance Banks, NBFCs, and lending institutions like SIDBI, NSIC, NEDFi, and others are among these financial institutions.
In India, SMEs and MSME account for roughly 10% of GDP. In addition, according to a conservative estimate, they employ seven crore people. Given the challenges the industry faces in obtaining credit, the CGTMSE goes a long way toward removing these roadblocks, allowing lenders to be more generous in giving credit.
In CGTMSE, the lock-in duration is 18 months.
Every lender charges a fee to the borrower. The interest rate on a loan is the most significant component of the borrower's expense. The majority of lenders are able to collect the CGTMSE loan interest rate, which is typically between 14 and 18 percent, including the guarantee cover.
CGTMSE has launched a new "Hybrid Security" product that provides guarantee coverage for the credit facility amount that is not covered by collateral security.