Introduction to Credit Guarantee Fund Scheme
Facing issues to avail credit at a reasonable interest rate is the most common issue faced by micro and small enterprises. Small enterprises not having enough funds and are in need of small loans, here is the solution for them. A MSME Scheme named as Credit Guarantee Fund Scheme specifically for Micro and Small Enterprises.
With the aim to provide collateral-free credit, Credit Guarantee Fund Scheme was launched by the government. By the collaboration of the Ministry of Micro, Small and Medium Enterprises, GOI and the Small Industries Development Bank of India, the CGFS came into existence.
Who shall grant credit under Credit Guarantee Fund?
The scheduled commercial banks i.e. Public Sector Banks/ Private Sector Banks/ Foreign Banks and select Regional Rural Banks classified as “Sustainable Viable” by NABARD.
What Credit Facility is provided by Credit Guarantee Fund Scheme?
Two types of credit facilities are covered under CGFS, namely term loans and/or working capital up to Rs. 100 Lakhs per borrowing unit.
Who can apply for Credit Guarantee Fund Scheme?
Under the Credit Guarantee Fund Scheme, micro, small, and medium enterprises (MSMEs) can apply for collateral-free loans from banks and financial institutions. However, not all MSMEs are eligible to apply for the scheme. The eligibility criteria for the scheme are as follows:
- The MSME must be registered as a legal entity under the relevant laws of India.
- The MSME must have a valid Udyog Aadhaar Memorandum (UAM) or any other equivalent document.
- The MSME must not have defaulted on any loan from any bank or financial institution.
- The MSME should be registered under the Goods and Services Tax (GST) regime.
- The MSME should not be engaged in any activity that is prohibited under the guidelines of the scheme.
In addition to the above eligibility criteria, there are certain sectors that are excluded from the Credit Guarantee Fund Scheme. These sectors include agriculture, retail trade, educational institutions, and self-help groups.
It is important to note that while MSMEs can apply for the scheme, the final decision on loan approval and the extent of the credit guarantee cover provided by the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is subject to the policies of individual banks and financial institutions.
Why go for MSME Credit Guarantee Fund Scheme?
The MSME Credit Guarantee Fund Scheme (CGTMSE) is a government-backed scheme that aims to provide collateral-free credit to small and medium-sized enterprises (MSMEs) in India. Here are some reasons why MSMEs may want to consider availing of this scheme:
- No requirement of collateral: Under the CGTMSE scheme, MSMEs can obtain credit without providing any collateral or third-party guarantee. This makes it easier for small businesses to access credit, which may otherwise be difficult due to their limited financial resources.
- Better access to credit: Since lenders are covered under the credit guarantee scheme, they are more likely to lend to MSMEs, thereby increasing their access to credit. This can help MSMEs in funding their working capital needs, expanding their business, and purchasing new machinery or equipment.
- Lower interest rates: Since the loans are guaranteed by the government, lenders may offer lower interest rates to MSMEs, thereby reducing their cost of borrowing.
- Flexibility in loan terms: The CGTMSE scheme offers flexibility in loan repayment terms, such as longer repayment periods and lower EMI payments. This can help MSMEs manage their cash flows better and reduce their financial burden.
- Boosts confidence of lenders: The credit guarantee scheme helps lenders mitigate their risk of default, thereby boosting their confidence in lending to MSMEs. This, in turn, can help MSMEs build a good credit score and establish long-term relationships with lenders.
All in all, the MSME Credit Guarantee Fund Scheme can provide a much-needed boost to MSMEs by providing them with collateral-free credit, better access to credit, lower interest rates, and flexible loan terms.
Overall, the Credit Guarantee Fund Scheme has been a significant source of support for MSMEs in India, helping them access the credit they need to grow and expand their businesses. Hope, with this guide you are now clear as to who is eligible to grant credit guarantee, who can apply under CGFS and why to go for Credit Guarantee Fund Scheme.