The inability of the capitalist to provide adequate security to banks and low recovery are often cited as major limitations in the flow of investment credit to SSI units. The problem is acuter for export-oriented and tiny sector enterprises.
To eliminate these problems, it was announced that a new credit insurance scheme will be launched.” As a follow-up measure, Ministry of SSI and Agro and Rural Industries, Government of India, in consultation with Small Industries Development Bank of India (SIDBI) formulated a Credit Guarantee Fund Scheme for Small Industries (CGFSI) for guaranteeing the loans and advances up to Rs. 25 lakhs extended by Scheduled Commercial Banks and selected Regional Rural Banks (RRBs) without collaterals and/or third party guarantees (TPG), to Small Scale Industrial Units including those engaged in Information Technology/software industry.
To operationalize the guarantee scheme, the Credit Guarantee Fund Trust for Small Industries (CGTSI) has been set up by GOI and SIDBI. Under the scheme, all eligible loans extended on or after June 1, 2000, by the lending institutions can be covered according to the implementation plan of the scheme. The scheme was formally launched by Hon’ble Prime Minister on August 30, 2000.
Small or micro-enterprises are the main victims of recession or any other problem. Therefore, they need to be well protected against these risks to increase their growth and confidence as well. This scheme fulfills all these requirements.
The Credit Guarantee Scheme (CGS)
If the 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 percent of the credit facility.
According to RBI guidelines
The CGTSI guarantee loans carrying zero risk weight and no provision need to be made for the guaranteed portion, in case the advances become NPAs.
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MODIFICATION MADE IN THE SCHEME
• Including Non-fund based working capital facilities under CGFSI within the overall limit
• Extension of additional term loan/working credit facilities to the borrowers already covered under the Scheme
• Package for the promotion of Micro & Small Enterprises
• Rationalisation of Guarantee Fee (GF) / Annual Service Fee
The Board of Trustees of Credit Guarantee Fund Trust for Small Industries, decided to launch and implement a Scheme for the purpose of providing guarantees to a substantial extent in respect of credit facilities to borrowers in Micro and Small Enterprises, hereby make the following Scheme:
The Scheme is known as the Credit Guarantee Fund Scheme for Small Industries (CGFSI) and it was launched on August 1, 2000.
• The lender should give importance to project viability and secure the credit facility purely on the primary security of the assets financed.
• The lender availing guarantee facility should endeavour to give composite credit to the borrowers so that the borrowers obtain both term loan and working capital facilities from a single agency.
The coverage of the Scheme is extended to all new and existing Micro and Small Enterprises (both in the Manufacturing Sector as well as in the Service Sector) as defined under MSMED Act, 2006.
The assets created out of the credit facility so extended and/or existing unencumbered assets which are directly associated with the project or business for which the credit facility has been extended.
If any question arises in regard to the interpretation of any of the provisions of the Scheme the decision of the Trust, in this case, will be final.
Eligible Lending Institutions
Scheduled commercial and Regional Rural Banks (which have been classified under ‘Sustainable Viable’ category by NABARD).
On May 31, 2016, there were 133 eligible Lending Institutions registered as MLIs of the Trust, comprising
1. 26 Public Sector Banks,
2. 21 Private Sector Banks,
3. 73 Regional Rural Banks (RRBs),
4. 4 Foreign Banks and
5. 9 other institutions
• Delhi Financial Corporation
• Kerala Financial Corporation,
• Jammu & Kashmir Development
• Finance Corporation Ltd,
• Andhra Pradesh State Financial Corporation,
• Export-Import Bank of India,
• The Tamil Nadu Industrial Investment Corporation Ltd.,
• National Small Industries Corporation (NSIC),
• North Eastern Development Finance Corporation (NEDFI)
• Small Industries Development Bank of India (SIDBI).
Eligible Credit Facility
The credit facilities which are eligible to be covered under the scheme are both term loans and/or working capital facility up to Rs.100 lakh per borrowing unit, extended without any security and/or third party guarantee, to a new or existing micro and small enterprise. For those units covered under the guarantee scheme, which may become sick owing to factors beyond the control of management, rehabilitation assistance extended by the lender could also be covered under the guarantee scheme.
ALSO, REMEMBER THAT:
• Reports in respect of approved Guarantees (MLI Wise / State Wise) can be sent through the system in the Reports and MIS module.
• For any additional data and MIS requirements, e-mail shall be sent to [email protected] only.
• Also, enter your Credit Guarantee amount in rupees.
• When you are generating the report, mention the type of activity very clearly.
• If there is only one instrument then you need only one RP No.
• Zonal or Regional offices meant for all payments.
• Mention RP No. in the forwarding letter.
Credit Guarantee Fund Scheme works for the betterment and modernization of the small scale industries. The scheme includes an efficient and practical structure. The implementation is all well planned and effective.
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