Credit Guarantee Fund Scheme for Small Industries (CGFSI) renamed as Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).Genesis of the Scheme : Hon'ble Union Finance Minister, in his budget speech for 1999- 2000, had indicated that "Inability of the entrepreneur to provide adequate security to banks and low recovery are often cited as major constraints in flow of investment credit to SSI units. The problem is more acute for export oriented and tiny sector enterprises. To alleviate the problems, it was announced that a new credit insurance scheme will be launched." As a follow up measure, Ministry of SSI and Agro and Rural Industries, Government of India, in consultation with Small Industries Development Bank of India (SIDBI) have formulated a Credit Guarantee Fund Scheme for Small Industries (CGFSI) for guaranteeing the loans and advances up to Rs. 25 lakhs extended by Scheduled Commercial Banks and selected Regional Rural Banks (RRBs) without collaterals and / or third party guarantees (TPG) , to Small Scale Industrial Units including those engaged in Information Technology/software industry. To operationalise the guarantee scheme, Credit Guarantee Fund Trust for Small Industries (CGTSI) has been set up by GOI and SIDBI. Under the scheme, all eligible loans extended on or after June 1, 2000 by the lending institutions can be covered under the purview of this scheme. The scheme was formally launched by Hon'ble Prime Minister on August 30, 2000. According to RBI guidelines, the CGTSI guaranteed loans carry zero risk weight and no provision needs to be made for the guaranteed portion , in case the advances become NPAs. Subsequent Modifications under the Scheme : To make the scheme more entrepreneur -friendly, the scheme is modified from time to time . Some of the important modifications effected under the scheme are furnished hereunder :
Inclusion of Non-fund based working capital facilities under CGFSI within the overall limit : The scheme has been modified w. e. f 01.02.2005 to cover "Credit facilities " which means any financial assistance by way of term loan and / or fund based and non-fund based working capital facilities (cash credit, overdraft, bills purchased or discounted, bank guarantee, Letter of credit, etc.) extended to the eligible borrower. For the purpose of calculation of guarantee fee, the "credit facility extended" shall mean the amount of financial assistance committed by the lending institution to the borrower, whether disbursed or not. For the purpose of the calculation of service fee, the credit facility extended shall mean the credit facilities (both fund and non-fund based) covered under CGFSI and for which guarantee fee has been paid, as at March 31, of the relevant year.
Extending additional term loan / working credit facilities to the borrowers already covered under the Scheme : In respect of eligible borrowers already covered under the Scheme , banks can extend additional term loans / enhanced working capital facilities to such borrowing units by taking collateral security and / or TPG, if considered necessary, keeping in view the risk perception. The collateral security / TPG would, however, be restricted to the additional loan / credit facility only.
Package for promotion of Micro & Small Enterprises Based on the modifications suggested in the "Package for promotion of Micro and Small Enterprises" as approved by Cabinet Committee on Economic Affairs on October 16, 2006 and as announced in the Parliament on February 27, 2007 by the Hon’ble Minister of Micro, Small and Medium Enterprises and further approvals as obtained from the Settlors of the Trust, the following changes have been effected in the scheme: The Trust has been renamed as the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). The Scheme is known as the ‘Credit Guarantee Fund Scheme for Micro and Small Enterprises’ instead of ‘Credit Guarantee Fund Scheme for Small Industries’. The coverage of the Scheme has been extended to all new and existing Micro and Small Enterprises (both in the Manufacturing Sector as well as in the Service Sector) instead of SSI /SSSBE(IR) units. It has been clarified by CGTMSE that in respect of Micro and Small Enterprises (in the service sector ) lending institutions to adhere to RBI’s guidelines on "lending to Priority Sector " i.e. to include small road and water transport operators, small business, professional and self employed persons and all other service enterprises under the ambit of Micro and Small Enterprises but exclude retail trade. The eligible loan limit under the Scheme is increased to Rs. 50 lakh instead of Rs.25 lakh as obtaining earlier. The credit guarantee cover is raised from 75% to 80% for the following category of loans: a. Loans to Micro enterprises upto Rs. 5 lakh; and b. Loans to Micro and Small enterprises operated and/ or owned by women. In North Eastern Region, the up-front Guarantee Fee is reduced by 50% from 1.5% to 0.75% for all loans and the extent of guarantee cover is raised from 75% to 80% for all loans in the North Eastern Region.
Rationalisation of Guarantee Fee (GF) / Annual Service Fee (ASF) : consequent upon the announcement of reduction in GF/ASF made by the Hon’ble Union Finance Minister, Government of India, in the Parliament on February 29, 2008 while presenting the Union Budget for FY 2008-09, it has been decided to modify the GF/ASF structure in respect of credit facility upto Rs. 5 Lakh sanctioned by MLIs (member lending institution). Accordingly , it has been informed by CGTMSE that though the budget proposals are made effective from April 01st of the subsequent year, it has decided to extend the benefit of reduced GF/ASF to the Micro and Small Enterprises (MSEs) sector during the financial year (2007-08). The reduction in GF is effective from March 01, 2008 and the ASF for FY 2008 will be charged at the reduced rate. Consequently, schedule of Guarantee Fee / Annual Service Fee is revised as under. A one time guarantee fee at specified rate (currently 1.00% in the case of credit facility upto Rs. 5 Lakh and 1.5% in the case of credit facility above Rs. 5 Lakh) of the credit facility sanctioned (comprising term loan and / or working capital facility ) shall be paid upfront to the Trust by the institution availing of the guarantee within 30 days from the date of first disbursement of credit facility.
The annual service fee at specified rate (currently 0.50% in the case of credit facility upto Rs. 5 Lakh and 0.75% in the case of credit facility above Rs. 5 Lakh) of the credit facility sanctioned (comprising term loan and / or working capital facility) shall be paid by the lending institution within 60 days i.e. on or before May 31, of every year.
To encourage the entrepreneurs, in case of advances granted under Credit Guarantee Fund Scheme of CGTMSE , 50% of the guarantee fee is borne by Dena Bank and remaining 50% Guarantee Fee is to be borne by borrower.