02 Mar Micro and Small Enterprises: Understanding the CGTMSE Scheme
In the landscape of Micro, Small, and Medium Enterprises (MSMEs), ensuring their growth and sustainability is crucial for economic development. These enterprises, often referred to as the backbone of the Indian economy, require special support and protection to thrive. One such initiative by the government is the CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises), aimed at providing financial assistance to MSMEs without the need for third-party guarantees or collateral. This article delves into the intricacies of the CGTMSE scheme.
Overview of CGTMSE:
The CGTMSE scheme operates with the objective of offering financial aid to MSMEs while alleviating the burden of collateral or third-party guarantees. It assures lenders of a guarantee cover in case of default, ranging from 50% to 85% of the sanctioned amount. The primary objectives of this fund include evaluating the financial viability of MSME projects and facilitating term loans and composite credit schemes. Under this scheme, MSMEs can secure loans up to Rs. 200 lakhs, with special provisions for women entrepreneurs and borrowers in Northeastern states.
Fee Structure:
CGTMSE charges a nominal fee for its services, calculated as a percentage of the sanctioned amount. The fee rates are as follows:
- 0.75% for credits up to Rs. 5 Lakhs
- 0.85% for credits exceeding Rs. 5 Lakhs but up to Rs. 100 Lakhs
The guarantee cover provided ranges from 75% to 85%, depending on the loan amount and the category of the enterprise. The tenure of the guarantee extends over a block of 5 years.
Extent of Cover:
CGTMSE offers an extensive cover, particularly favoring enterprises owned by women and those located in the Northeastern states of India, including Sikkim. In case of default, the trust settles claims up to 75% to 80% of the outstanding amount, subject to a cap of Rs. 50 Lakhs. For amounts exceeding Rs. 50 Lakhs up to Rs. 200 Lakhs, the guarantee cover is reduced to 50%.
Eligible Enterprises:
The CGTMSE scheme caters to both new and existing Micro, Small, and Medium Enterprises engaged in manufacturing or service activities, excluding retail trade, educational institutions, self-help groups, and training institutions. Moreover, selected Non-Banking Financial Companies (NBFCs) are now eligible to participate in the scheme.
Associated Banks:
Several banks, including Scheduled Commercial Banks (public, private, or foreign) and certain Regional Rural Banks categorized as “Sustainable Viable,” act as eligible lenders under the CGTMSE scheme. As of May 31, 2015, there are 133 registered lending institutions associated with the trust.
Application Process:
To avail of the CGTMSE scheme, enterprises must follow a structured application process:
- Prepare a comprehensive business plan demonstrating the project's viability.
- Select a suitable lender bank and submit the application along with the business plan.
- The bank verifies the details and forwards the application to CGFTMSE for scrutiny.
- Upon approval, funds are disbursed to the business, with the borrower required to pay the CGTMSE guarantee and service fee.
Supporting MSMEs through initiatives like CGTMSE is imperative for fostering entrepreneurship and economic growth, ultimately contributing to India’s development journey.
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