CGTMSE Loan Scheme: Full Form, Scheme, Fee, Loan Eligibility

Anubhav Dwivedi -

What is CGTMSE Loan Scheme ?

  • CGTMSE Scheme stands for Credit Guarantee Fund Trust for Micro and Small Enterprises. It is a scheme set up by the Government of India to provide collateral-free credit guarantee coverage to banks and financial institutions for loans extended to micro and small enterprises (MSEs). The scheme aims to increase the flow of credit to MSEs, which are considered important for the economic development of the country. The scheme covers both new and existing MSE units and is implemented through a trust set up by the Government of India.

What is the fees for CGTMSE Scheme?

Here's the table with the CGTMSE fee rates after discount:

Loan Amount Range (in INR)      Standard Rates (%)     Fee Rate after Discount (%)

  • Up to 10 Lakh                                    0.37                         0.33
  • Above 10 Lakh to 50 Lakh             0.55                          0.50
  • Above 50 Lakh to 1 Carore             0.60                          0.54
  • Above 1 Carore to 2 Carore            1.20                           1.08

These rates represent the fee rates after applying the specified discount. Please note that these rates are subject to change and it's advisable to confirm with CGTMSE or the respective financial institution for the most accurate and up-to-date information.

What is covered in CGTMSE Scheme?

  • CGTMSE covers credit facilities extended to Micro and Small Enterprises (MSEs) by eligible financial institutions, including loans, working capital facilities, and term loans. It provides a credit guarantee to lenders against default by MSE borrowers, up to a certain limit. This guarantee covers both principal and interest. The scheme encompasses various sectors, including manufacturing, services, and trading. CGTMSE aims to facilitate easier access to credit for MSEs by mitigating the risk for lenders, thereby promoting entrepreneurship and fostering the growth of small businesses in India.

Is CGTMSE fee charged every year ?

  • Yes, a fee is charged every year by the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) for the credit guarantee coverage provided to banks and financial institutions. The fee is a percentage of the loan amount and varies depending on the loan amount and the sector in which the MSE operates. The fee is used to cover the administrative expenses of the trust and to build a corpus to meet any potential claims made by the banks and financial institutions. The percentage of fee charged ranges between 0.75% to 1% annually. It's important to note that the fee is to be paid by the borrower and is not included in the loan amount.

What is the maximum limit of CGTMSE?

  • Under the 'Hybrid Security' product, eligible financial institutions are permitted to obtain collateral security for a portion of the credit facility. The remaining portion of the credit facility, up to a maximum of Rs. 500 lakh, can be covered under the Credit Guarantee Scheme of CGTMSE. This hybrid approach allows lenders to secure their loans partially with collateral while also benefiting from the credit guarantee provided by CGTMSE, enhancing their risk management strategy and promoting lending to Micro and Small Enterprises (MSEs) in India.

Who is eligible for CGTMSE Scheme?

  • Eligibility for the CGTMSE scheme extends to both lenders and borrowers. Lenders, which include scheduled commercial banks, regional rural banks, selected financial institutions, and eligible NBFCs, can participate in the scheme. As for borrowers, Micro and Small Enterprises (MSEs) engaged in manufacturing or service activities, including retail trade, are eligible. These MSEs must have a valid Udyog Aadhaar Number (UAN) and must not be covered under the CGS (Credit Guarantee Scheme) or any other similar scheme. Additionally, the MSEs should meet the definition of MSMEs as per the MSMED Act, 2006.

What is the lock period for CGTMSE?

  • The lender can invoke the guarantee provided by CGTMSE only after the lock-in period of 18 months (or 9 months for guarantees up to Rs. 10 lakh with a tenure of up to 36 months). This period is calculated from either the date of the last disbursement of credit to the borrower or from the date when the guarantee cover comes into force for the specific loan, whichever is later. This stipulation ensures that the lender has a reasonable timeframe to manage and monitor the loan before seeking the CGTMSE guarantee in case of default.

What are the benefits of CGTMSE loan?

The CGTMSE loan offers several benefits for both borrowers and lenders:

  • Access to Finance: It enables Micro and Small Enterprises (MSEs) to access credit without the need for collateral or third-party guarantees, thus expanding their financial options.
  • Lower Risk for Lenders: Lenders are protected against default risks through the credit guarantee provided by CGTMSE, encouraging them to extend credit to MSEs with more confidence.
  • Lower Interest Rates: Since the risk for lenders is mitigated by the CGTMSE guarantee, MSEs may enjoy lower interest rates on their loans, making financing more affordable.
  • Flexible Loan Terms: CGTMSE supports various types of credit facilities, including term loans, working capital loans, and overdrafts, with flexible repayment terms.
  • Promotes Entrepreneurship: By facilitating easier access to credit, CGTMSE promotes entrepreneurship and the growth of Micro and Small Enterprises, contributing to economic development and job creation.

Overall, the CGTMSE loan scheme plays a crucial role in fostering the growth of MSEs by providing financial support and reducing barriers to accessing credit.

What is the minimum amount of CGTMSE coverage?

  • The minimum amount of CGTMSE coverage for credit facilities provided to Micro and Small Enterprises (MSEs) is typically Rs. 10,000. Credit facilities up to Rs. 500 lakh per eligible borrower are covered under the guarantee scheme, prvided they are extended based on project viability without requiring collateral security or third-party guarantee. This ensures that borrowers, particularly Micro and Small Enterprises (MSEs), can access substantial credit support without the burden of providing additional security, facilitating easier access to financing for their projects and business activities.

What is the maximum limit in CGTMSE?

  • Under the 'Hybrid Security' product, Member Lending Institutions (MLIs) are permitted to secure collateral for a portion of the credit facility. The remaining portion, up to a maximum of Rs 5 Crores, can be covered under the Credit Guarantee Scheme of CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises). This structure provides a flexible approach, allowing businesses to obtain credit with partial collateral support while still benefiting from the security of the credit guarantee scheme for the unsecured portion.

We hope that you like this content and for more such content Please follow us on our social site and YouTube and subscribe to our website.

Manage your business cash flows and payable/receivables using our Bahi Khata App

Download Bahi Khata