Know your MSME – collateral free borrowing


The Ministry of Micro Small and Medium Enterprises (MSME), in collaboration with SIDBI, has set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). This has been done to facilitate the flow of credit to the MSME sector without the need for collateral or third-party guarantee.  The main objective of the scheme to ensure that the lender gives importance to project viability and in doing that, secure the credit facility purely on the initial security of the assets financed.

The Credit Guarantee scheme seeks to reassure the lender that if the MSE fails to discharge its liabilities to the lender, the scheme would make good of the loss incurred by the lender. This amount will be up to 85% of the total outstanding amount.

The guarantee cover which is available under the scheme is to the extent of 75%, 80% and 85% of the total sanctioned amount of the credit facility; with a minimum guarantee cap of Rs 62.50 lakh and Rs 65 lakh. The extent of guarantee cover is 85% for micro enterprises for credit up to Rs 5 lakh.

The CGTMSE will provide credit cover for credit facility up to Rs100 lakh which have been extended by lending institutions without any collateral security and/ or third party guarantees. A guarantee and an annual service fee will be charged by the CGTMSE to avail of the guarantee cover. Presently the guarantee fee and annual service charges are to be borne by the borrower.

As far as the lender is concerned, he is eligible for credit facilities as soon as they are sanctioned. Whatever the case might be, the lender should apply for guarantee cover in respect of eligible credits that have been sanctioned in one calendar year quarter. This has to be done latest by the end of the subsequent calendar quarter.

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