On August 30, 2000, the government of India launched the CGTMSE initiative in collaboration with the Ministry of Micro, Small, and Medium Enterprises (MSME) and the Small Industries Development Bank of India (SIDBI). The CGTMSE acronym stands for Credit Guarantee Fund Trust for Micro and Small Enterprises, and as the name implies, it is a trust that provides credit guarantees to financial institutions in order for them to make loans to SMEs and MSMEs. Read more about cgtmse coverage below.
The primary goal of CGTMSE is to encourage first-time entrepreneurs to establish SMEs and MSME, which are regarded as the backbone of the Indian economy, by providing collateral-free loans from qualified financial institutions. The guarantee covers the borrower's failure to repay the advance. Thus, the primary goal of the CGTMSE scheme is to provide loans to first-generation entrepreneurs so that they can thrive in a competitive environment without the burden of security or third-party guarantees. In turn, financial institutions compensate for the lack of security by funding SMEs and MSMEs promoted by small Indian entrepreneurs up to a certain limit.
The following are the characteristics of the credit guarantee scheme:
● One of the primary goals of CGTMSE coverage is to build a strong credit relief system that promotes better credit flow to SMEs and the MSME sector. The following are the CGTMSE scheme's standout features:
● Guaranteed repayment of 75% or 85% of the defaulted principal loan amount, up to Rs. 50 lakh in some cases.
● For loan amounts greater than Rs 50 lakh but less than Rs 1 crore, the maximum guarantee is 50%.
● Micro-enterprise loans of up to Rs. 5 lakh are eligible for 85% repayment.
● If the MSME is promoted by a woman or the unit is located in the North East Region, the guarantee amount for repayment is 80 percent of the loan amount (NER).
● The repayment procedure, or CGTMSE loan recovery, covers the entire loan amount inclusive of the interest component for a period of three months and/or the entire outstanding loan amount plus accrued interest from the date the suit is filed or the day the loan becomes non-performing, whichever is later.
● Rehabilitation of business units up to Rs. 1 crore as support to the lender for assistance in resuscitating the enterprise if the failure is beyond the management's control.
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Application of the CGTMSE:
● When eligible credit facilities are sanctioned, it is the lender's responsibility to apply for them. The accepted norms for obtaining guarantee coverage and the applicable terms are as follows:
● Sanctioned during the calendar quarter and must be completed by the end of the following calendar quarter.
● The guarantee will begin when the CGTMSE fee is paid.
● For term and composite loans, the coverage will last for the agreed-upon term.
● If the borrower only receives a working capital loan, the period of cover shall be 5 years or any other period specified by CGTMSE.
CGTMSE Loan Interest Rate:
Every lender charges a fee to the borrower. The interest rate on the loan is the most important component of the borrower's cost. When the guarantee cover is included, the majority of lenders recover the CGTMSE loan interest rate, which does not exceed 14 percent to 18 percent.
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