The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGS) was launched by the Government of India (GoI) to make available collateral-free credit to the micro and small enterprise sector. Both the existing and the new enterprises are eligible to be covered under the scheme. The Ministry of Micro, Small and Medium Enterprises, GoI and Small Industries Development Bank of India (SIDBI), established a Trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement the Credit Guarantee Fund Scheme for Micro and Small Enterprises. Eligible Lending Institutions
About the Scheme
Under the scheme, eligible members can get credit facilities from banks to finance medium and small enterprises. Loans up to a maximum of INR 1 crore can be availed, with the differentiating factor being the Credit Guarantee provided by the government.
The Credit Guarantee scheme (CGS) seeks to reassure the lender that, in the event of a MSE unit, which availed collateral free credit facilities, fails to discharge its liabilities to the lender, the Guarantee Trust would make good the loss incurred by the lender up to 75 / 80/ 85 per cent of the credit facility.
Getting a Businees Loan under CGTMSE
Fees and Interest rate charged under CGTMSE Scheme
Guarantee fee – Each MLI is expected to pay a guarantee fee to the trust, with this amount depending on the quantum of credit provided. MLIs are expected to pay this fee within a period of 30 days from disbursement of credit. The table below highlights the guarantee fee applicable in different cases.
|Amount Sanctioned||Guarantee Fee for borrowers from North East||Guarantee Fee for Others|
|0.75%||1% of amount sanctioned|
|5 lakhs||0.75%||1.5% of amount sanctioned|
|50 lakhs||N/A||1.5% of amount sanctioned|
Annual service fee – Each MLI is expected to pay a guarantee fee to the trust, with this amount depending on the quantum of credit provided. MLIs are expected to pay this fee within a period of 30 days from disbursement of credit. The table below highlights the guarantee fee applicable in different cases.
|Amount Sanctioned||Annual Fee|
|0.5% amount guaranteed|
|5 lakhs||0.75% amount guaranteed|
Interest rate – Lending institutions can charge an interest rate as their discretion, subject to the condition that this rate falls under RBI guidelines. This interest rate depends on the Prime Lending Rate (PLR) of an institute, with it not exceeding the PLR by over 3%. For example, if the PLR of a bank is 8%, the maximum interest it can charge is (8 + 3) = 12%.
Note: While the interest rate is to be borne by the borrower, MLIs can choose to pay the annual service/guarantee fee through their own funds or pass the fee to borrowers.
Note: The trust can change the annual service fee/guarantee fee at its own discretion and applicants should check prevailing rates at the time of borrowing.
The List of the Member Lending Institution (MLI) / Banks that provide this service please click here.