CGTMSE Scheme
CGTMSE: Credit Guarantee Fund Trust for Micro and Small Enterprises
Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is jointly set up by Ministry of Micro, Small & Medium Enterprises (MSME), Government of India and Small Industries Development Bank of India (SIDBI) to catalyse flow of institutional credit to Micro, Small and Micro Enterprises (MSEs). Both the existing and the new enterprises are eligible to be covered under the scheme. The scheme was formally launched on August 30, 2000 and is operational with effect from 1st January, 2000.
CGTMSE Scheme: Overview
| Interest Rates | As per RBI’s Guidelines, eligible for coverage under CGTMSE |
| Eligible Activities |
|
| Loan Amount |
|
| Guarantee Coverage | From 75%-85% (50% Coverage for retail activity) |
| Collateral/Third Party Guarantee | Not Required |
| Eligible Member Lending Institutions | More than 100: PSUs, NBFCs, RRBs, Private Banks, SUCBs, FIs, SFBs, and Foreign Banks |
| Annual Guarantee Fee for Amount up to Rs 1 crore | Fee revised from 2% and reduced to as low as 0.37% |
Table of Contents
What is CGTMSE Scheme?
The CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) loan scheme is a government-backed initiative that helps micro and small businesses access loans without the need for collateral or third-party guarantees.
Under this scheme, the government provides a credit guarantee to lending institutions for loans extended to eligible micro and small enterprises (MSEs). This guarantee covers a significant portion of the loan amount, reducing the risk for lenders and making it easier for MSEs to obtain financing.
Benefits of CGTMSE Scheme
- Ceiling for Guarantee coverage limit increased to Rs 500 lakh from Rs 200 lakh.
- Guarantee fee reduced to lower overall borrowing costs for MSEs.
- Micro Finance Institutions are now eligible as member lending institutions.
- SC/STs have the benefit of increased coverage and concessions related to fees.
- Reduced Guarantee fee by 10% and coverage extent increased to 85% to Women, ZED Certified Units and Units in Aspirational Districts.
- Annual guarantee fee restructured, as low as 0.37% for some.
Also Read: MSME Classification in Detail.
Credit Guarantee under CGTMSE Scheme
Credit Guarantee refers to a situation where the loan to the applicant is backed by a party without the need for any collateral or third-party guarantee. In this, the loan sanctioned by the member lending institution is backed by the scheme which provides the guarantee cover for a large portion of the loan amount. The CGTMSE scheme allows both the existing and new micro and small enterprises, which also includes manufacturing and service enterprises, to be eligible for a credit facility of Rs 5 crore.
Credit Facilities that are not covered under CGTMSE Scheme
Credit facilities that are not covered under CGTMSE Scheme include:
- Loans for educational, training and self-development purposes.
- Retail trade or consumer loans.
- Any loans for agriculture, fisheries and livestock sectors.
- Loans for Self-help Groups (SHGs).
- Micro Finance and loans under the direct agriculture category.
- Credit facilities availed for non-business purposes.
- Loans secured by collateral or third-party guarantees.
- Any credit facility for enterprises in sectors deemed are not eligible by CGTMSE.
- Facilities available by enterprises that are not classified as Micro or Small Enterprises (MSEs).
Schemes under CGTMSE
| Scheme Name | Description |
| Credit Guarantee Scheme (CGS) | The core scheme provides guarantee coverage for loans extended to MSEs by banks and financial institutions without requiring collateral or third-party guarantees. The guarantee covers up to 85% of the loan amount. |
| Hybrid Security Scheme | This scheme allows a portion of the loan to be secured by collateral while the unsecured portion is covered under CGTMSE guarantee. It provides flexibility to both lenders and borrowers. |
| CGTMSE for Women Entrepreneurs | This scheme offers special coverage and higher guarantee support to women-owned businesses. |
| Credit Guarantee for MUDRA Loans | Under this scheme, CGTMSE provides credit guarantee coverage for loans extended under the MUDRA initiative, targeting micro-enterprises. |
How does the CGTMSE Scheme Work?
A systematic process is followed in the CGTMSE Scheme to provide credit guarantee to lenders for loans availed to Micro and Small Enterprises (MSEs).
Here’s how it works:
Step 1: Any borrower that has incorporated in a private limited company, limited liability partnership, one-person company, or a proprietorship according to the nature of the business can apply for loans from participating financial institutions (PFIs) such as banks or NBFCs.
Step 2: Borrowers need to conduct market analysis and prepare a business plan containing relevant information such as business model, promoter profile, projected financials, etc. The report is then presented to the credit facility and an application is filed for getting the loan under the CGTMSE scheme. The PFIs assess the creditworthiness of the MSE borrowers and their loan requirements.
Step 3: The PFI applies to the CGTMSE for coverage of the loan under the scheme on behalf of the MSE borrower.
Step 4: Upon verification and approval by CGTMSE, the loan is covered under the scheme providing credit guarantee to the PFI against default by the MSE borrower.
Step 5: Once approved, the PFI disburses the loan amount to the MSE borrower.
Step 6: The MSE borrower repays the loan according to the agreed terms. If default occurs, the PFI initiates the claims process with CGTMSE.
Step 7: CGTMSE settles the claim partially, covering a portion of the defaulted amount as per the scheme’s terms and conditions.
Also Read: MSME Advantages and Disadvantages
CGTMSE Scheme Eligibility
All Existing and New Micro and Small Enterprises (MSEs) are eligible borrowers for CGTMSE scheme. To be eligible for this scheme, a business must meet the following criteria:
- The business should be categorised for micro or small enterprises.
- The proposed business activity should not fall under the negative list of the scheme.
- The business owner should possess the required skills and experience in the specific sector.
- The business should comply with all statutory and regulatory requirements.
Documents required for CGTMSE Loan Application
The documents required for a loan application under CGTMSE scheme are mentioned below:
- Duly-filled CGTMSE loan application form with passport-sized photographs.
- Business Incorporation or Company Registration Certificate.
- Business Project Report.
- CGTMSE Loan Coverage Letter.
- Copy of loan approval from the bank.
- Any other document required by the bank.
Steps to avail Business/MSME Loan under the CGTMSE Scheme
The procedure for applying and availing MSME loan under CGTMSE are given below:
Step 1: Formation of the Business Entity
Prior to commencing the CGTMSE loan application, establish a suitable business entity by incorporating a private limited company, limited liability partnership, one-person company or proprietorship according to the nature of the business and secure all necessary approvals prospects.
Step 2: Preparing a Business Report
Conduct a thorough market analysis and compile a detailed business plan encompassing key aspects such as the business model and financial projections. Seeking professional assistance for preparing accurate project reports can enhance approval prospects.
Step 3: Loan Sanction by the Bank
The request for a bank loan usually contains credit terms and working capital facilities. After the application and business plan are under process, banks thoroughly analyse the viability of the business model and process the loan application and avail sanction as per the bank’s policy.
Step 4: Obtaining the Guarantee Cover
Upon loan sanction, the bank applies for CGTMSE guarantee cover. If the loan is approved by CGTMSE, the borrower will have to pay the guarantee fee and service charges. The CGTMSE loan application form can be downloaded from its official website.
CGTMSE Charges
The CGTMSE charges are fees levied by Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to provide credit guarantees to lenders. These charges vary based on the sanctioned loan amount.
| Slab | CGTMSE Charges (Percentage) |
| Up to Rs 10 lakhs | 0.37% |
| Above Rs 10-50 lakhs | 0.55% |
| Above Rs 50 lakhs- Rs 1 crore | 0.60% |
| Above Rs 1-2 crores | 1.20% |
| Above Rs 2-5 crores | 1.35% |
Source: https://www.cgtmse.in/Home/VS/47
FAQs
The full form of CGTMSE is Credit Guarantee Fund for Micro and Small Enterprises.
The credit limit under the CGTMSE scheme is up to Rs 2 crore per borrower, including terms loans and working capital. The credit facility may be extended as cash credit, term loans or a combination of both. The collateral-free loan under CGTMSE scheme is provided to micro and small enterprises to promote entrepreneurship and facilitate credit flow.
The guarantee cover will commence from the date on which guarantee fee proceeds are credited to the bank account of the Trust. Guarantee will commence from guarantee start date and shall run through the agreed tenure of the term loan/composite loans. Where working capital facilities alone are extended to eligible borrowers, it would be for a period of 5 years or block of 5 years on renewal of the guarantee cover, provided MLI pays the Annual Service Fee due as on March 31, latest by within 60 days from the date of demand by CGTMSE or such date specified by the Trust.
The MSE unit applying can be proprietary firm, partnership, limited liability partnership, private company or public limited company.
Yes, the guarantee cover available will be restricted to credit of Rs 5 crore even though credit extended is more than Rs 5 crore to an eligible borrower. In other words, the maximum credit risk borne by CGTMSE is restricted to Rs 3.75 crore i.e 75% of the amount in default.
Various commercial banks, regional rural banks and financial institutions participate in the CGTMSE scheme. The list of participating banks and financial institutions are regularly updated on the official CGTMSE website.
The lock period for CGTMSE typically varies depending on the specific terms of the loan agreement between the lender and the borrower. However, generally the lock period is up to 5 years from the date of disbursement of the credit facility. During this period, the borrower is expected to adhere to the terms of the loan agreement and any changes or early repayment may be subject to penalties or renegotiation terms specified therein.
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