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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.

Key Features of CGTMSE Scheme

The construction of a robust credit relief system that supports improved credit flow to SMEs and the MSME sector is one of the primary objectives of CGTMSE coverage. The following are the standout elements of the CGTMSE scheme:

  • Guaranteed payback of 75% to 85% of the defaulted principal loan amount up to Rs.50 lakh in specified instances.

  • For loans of more than Rs.50 lakh but less than Rs.1 crore, the maximum guarantee is 50%.

  • Micro-enterprise loans of up to Rs.5 lakh, the maximum guarantee is 85%.

  • If the MSME is promoted by a woman or the unit is located in the NorthEast Region, the guarantee amount for repayment is 80 percent of the loan amount.

  • The payback method, also known as CGTMSE loan recovery, covers the total loan amount, including interest, for a period of three months and/or the entire outstanding loan amount, plus accumulated interest, from the moment the action is filed until the loan becomes non-performing, whichever comes first.

  • Rehabilitation of business units to the tune of Rs.1 crore as support to the lender for aid in revitalizing the organisation if the failure is beyond the management's control.

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CGTMSE Scheme Eligibility

According to the CGTMSE rules, a credit guarantee is considered to back a borrower with collateral and a third-party guarantee free advance. Under the scheme, a member 

lending institution, which can also be an NBFC, that lends to the SME and MSME sector is eligible for a maximum credit cap of Rs. 2 crores, which is expected to cover a significant portion of the loan amount in any scenario. Both credit providers and borrowers must meet the qualifying requirements.

  • Lending Institutions: This category includes institutions that lend to the relevant sector and have entered into a lending agreement with the CGTMSE. These are known as Member Lending Institutions (MLIs), and there are currently 131 of them.
  • Borrowers: All new and current SMEs must meet the following criteria to be covered by the CGTMSE:

  • For a guarantee cover of not more than Rs. 62.50 Lakhs / Rs.65 Lakhs, the maximum credit facility is Rs.50 Lakhs.

  • The guarantee cap is set at rupees one crore for loan facilities exceeding Rs. 50 Lakhs.

  • Term credit for the total outstanding amount on the date the loan is designated a non-performing asset (NPA) or when a lawsuit is filed.

  • Exclusions: Some entities are not covered by the CGTMSE. Retail Trade is what they're called.

  • Agriculture. Educational Institutions.

  • Self-Help Organizations (SHG).

  • Institutes of education.

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How to Apply for CGTMSE Scheme

The CGTMSE's goal is to allow banks to look at small and micro firms objectively and place a greater emphasis on project viability and business model validation.

 In addition to the interest paid by the bank, the borrower must pay an additional guarantee fee and service charge to cover the loan under the credit guarantee fund programme. The current CGTMSE cost is 1.5 percent of the total fee. For the North-Eastern area, which includes the state of Sikkim, it is payable at 0.75 percent. The following is the procedure for obtaining a loan through the CGTMSE:

  • Step 1: Establishing a Business Entity

Before beginning the CGTMSE loan approval process, the borrower must first form a private limited company, limited liability partnership, one-person corporation, or proprietorship, depending on the type of the firm, and receive the relevant approvals and tax registrations.

  • Step 2: Create a Business Plan

Borrowers must do market research and develop a business plan that includes pertinent information such as a business model, promoter profile, predicted financials, and so on. After that, the report is delivered to the credit facility, and an application for a loan under the CGTMSE programme is submitted. Businesses should, however, consider having experienced specialists create such project reports. This will improve your chances of getting approved.

  • Step 3: Bank Loan Sanction

Credit terms and working capital facilities are generally included in a bank loan request. After reviewing the application and business plan, banks carefully evaluate the sustainability of the business model, process the loan application, and grant sanctions in accordance with the bank's policies.

  • Step 4: Getting the Insurance Coverage

Following the loan's approval, the bank applies to the CGTMSE authorities for a guarantee cover. The borrower will be responsible for the guarantee fee and service charges if the loan is approved by CGTMSE. The CGTMSE loan application form is available for download on the organization's official website.


There are 141 banks on the extended list of MLIs under the CGTMSE system, including all of India's main rural, urban, public sector, and private sector banks. Some of India's largest banks are represented on the list. Note that CGTMSE does not provide loans, credit facilities, or subsidies through its MLIs, nor does it have any Loan Agents, Agencies for arranging loans, or credit guarantees.

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Documents Required for CGTMSE Loan Application

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.

FAQs on CGTMSE Scheme

What is the full form of CGTMSE?

The full form of CGTMSE is Credit Guarantee Fund Trust for Micro and Small Enterprises.

What is the CGTMSE fee?

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.

What is the CGTMSE claim settlement procedure?

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.

Which banks provide loans under CGTMSE?

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.

How is CGTMSE advantageous for business?

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.

What is the lock-in period in CGTMSE?

In CGTMSE, the lock-in duration is 18 months.

What is the rate of interest on CGTMSE loans?

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.

What is CGTMSE Coverage?

CGTMSE has launched a new "Hybrid Security" product that provides guarantee coverage for the credit facility amount that is not covered by collateral security.

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