Ministry of MSME
. Government of India and SIDBI
Existing and new MSMEs
Businesses, especially MSMEs, require a steady source of finance if they are to meet the hiccups of kick-starting their business and growing it. Whether it is the working capital needs of the business, buying the required equipment for production or infusing additional capital, funds are required for varied needs. Though business loans are available, they are difficult to obtain in when the MSME is in its nascent stage.
MSMEs are important for the Indian economy to grow as they allow budding entrepreneurs to float their business ideas and contribute to the GDP. Thus, to help MSMEs establish themselves without any financial hurdles, a reliable source of funding is required. This is where the Credit Guarantee Scheme offered by the Government of India proves useful. Let’s see how the scheme benefits MSMEs financially:
Credit Guarantee Scheme
What the scheme offers?
The Credit Guarantee Scheme offers unsecured loan facilities to MSME businesses. MSME businesses can avail term loans or working capital loans under the scheme. Salient features of the scheme include the following:
- These loans would be collateral free and would not require MSMEs to pledge any security or arrange for third party guarantee for availing credit.
- If the MSME, which has availed a loan under the Credit Guarantee Scheme, becomes sick due to reasons beyond the control of the organisation, the lender also provides rehabilitation facility to such MSMEs. This assistance is provided under the guarantee scheme
- Loans up to Rs 50 lakh is allowed to individual MSMEs
Who runs the scheme?
The scheme is available under the Development Commissioner Ministry of Micro, Small and Medium Enterprises. The Ministry of Micro, Small and Medium Enterprises, Government of India and the Small Industries Development Bank of India (SIDBI) run the Credit Guarantee Scheme. They have established a Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) which implements the Credit Guarantee Scheme. The funds to MSMEs are contributed by the Government of India and SIDBI in the ratio of 4:1.
Who are eligible for the scheme?
Both new and existing MSMEs can avail credit under the scheme. For the guarantee scheme, up to 75% of the loan allowed under Credit Guarantee Scheme is covered under the guarantee up to a maximum of Rs 50 lakh. The guarantee cover is provided for 5 years or above in blocks of 5 years. Moreover, a composite fee of 1% per annum of the credit sanctioned is charged under the guarantee scheme.
In terms of lenders, eligible banks and financial institutions include scheduled commercial banks and some regional rural banks which have been classified by NABARD under ‘Sustainable Viable’.
How to apply for the scheme?
Interested MSMEs can approach the eligible lenders and propose to avail loans under the Credit Guarantee Scheme. Moreover, the CGTMSE is using multiple approaches to increase awareness about the scheme among banks, industry associations of MSMEs and the MSME sector as a whole. So, interested MSMEs can learn about the scheme and then approach eligible lenders for their financial requirements.
The Credit Guarantee Scheme has become quite popular ever since its inception in the financial year 2000-01.The scheme has been growing with leaps and bounds and as of 31st May 2016, more than 1 lakh credit facilities have been approved amounting to a cumulative total loan sanctioned under the scheme to be Rs 113,500 crore. So, if your business is in need of funds, don’t look elsewhere. Avail easy credit facilities under the Credit Guarantee Scheme and give your business the much needed financial assistance to grow and flourish.