Credit Guarantee Fund Trust for

Micro and Small Enterprises

(CGTMSE)
Presentation on
Credit Guarantee Scheme
 Micro, Small & Medium Enterprises
New Nomenclature & Classification

Enterprises
Manufacturing Service
(Ceiling on investment (Ceiling on investment
in Plant & Machinery) in Equipment)

Rs.25 lakh Micro Rs. 10 lakh

Rs.5 crore Small Rs.2 crore

Rs.10 crore Medium Rs.5 crore

 Micro & Small Enterprises - Importance

 Provide employment to more than 40 Million persons

 Largest employment generating sector after agriculture
 Employment potential at low capital cost
 Constitute 95% of industrial units
 Total of 13 Million registered / unregistered MSEs
 Key contributors to national economy
 45% of manufacturing output
 40% of total exports
 9% of Gross Domestic Product

Facilitating Collateral-free Credit to Micro & Small Enterprises

 Guarantee Framework - Need

Policy makers world over

 Strive for equitable wealth distribution

 Desire to direct credit flow to specific sectors
 Seek to evolve mechanisms to achieve
developmental objectives
 Aspire for financial inclusion / overall economic
development
 Govern Banks for social empowerment

Facilitating Collateral-free Credit to Micro & Small Enterprises

 Guarantee Framework - Need

 Banks exposed to various risks while lending

 Default Risk factor - deterrent in MSE lending

 Collateral - conventional risk mitigation tool

 Lack of Collateral – commonly stated obstacle

 Micro & Small Enterprises adversely affected

 Need for alternate risk mitigation mechanism

Facilitating Collateral-free Credit to Micro & Small Enterprises

 Credit Guarantee – Global scenario

 Advocated as effective credit supplementation tool

 Largely promoted / sponsored by Government

 Dates back to 1936 in Japan

 Gained acceptance in Europe – 1950’s

 Well evolved in most developed economies

 Multiple agencies operate in some countries

Facilitating Collateral-free Credit to Micro & Small Enterprises

 Credit Guarantee in India
 Export Credit Guarantee Corporation of India Ltd – established in
1957 – to cover risk of exporting on credit

 Credit Guarantee Scheme for Small Scale Industries introduced in

July, 1960 with Reserve Bank of India (RBI) as Administrator. RBI
operated the scheme up to March, 1981

 Credit Guarantee Corporation of India Ltd – established in 1971 –

to guarantee loans under priority sector

 Merged with Deposit Insurance Corporation in 1978 to form

Deposit Insurance and Credit Guarantee Corporation (DICGC)

 Credit guarantee schemes of the Corporation discontinued as the

credit institutions gradually opted out of the scheme

Facilitating Collateral-free Credit to Micro & Small Enterprises

 CGTMSE - Establishment

 Set up as a Trust in August, 2000 and

administered by a Board of Trustees

 Government of India and Small Industries

Development Bank of India (SIDBI) – the
settlors – Contribution ratio 4 :1

 Initial Corpus – Rs.125 crore ; Present

Corpus – Rs.1907 crore ; Committed Corpus –
Rs.2500 crore

Facilitating Collateral-free Credit to Micro & Small Enterprises

 CGTMSE - Objectives

 Shift from collateral to merit based lending

 Act as catalyst of entrepreneurship promotion

 Facilitate institutional credit flow to MSE sector

 Address growth constraints of MSE sector

 Enable financial inclusion / employment generation

 Revive confidence in credit guarantee mechanism

Facilitating Collateral-free Credit to Micro & Small Enterprises

 Credit Guarantee Scheme (CGS)

 Operated through Banks / Lending Institutions

registered as Member Lending Institutions (MLIs)
 Scheduled Commercial Banks / select Regional
Rural Banks (RRBs) / other lending institutions as
approved by Ministry of MSME eligible to register
as MLIs
 97 Banks / RRBs / other lending institutions
registered as MLIs with CGTMSE
 Operations done through web-based B2B E-
Business software
Facilitating Collateral-free Credit to Micro & Small Enterprises
 CGS - Definitions

Collateral Security – Security provided in

addition to the primary security, in
connection with the credit facility extended
to the borrower
Primary Security – Assets created out of the
credit facility extended and / or existing
unencumbered assets which are directly
associated with the project or business for
which the credit facility has been extended
Facilitating Collateral-free Credit to Micro & Small Enterprises
 CGS – Cardinal Principles

Lender should extend credit without

obtaining any Collateral Security / Third
Party Guarantee

Interest Rate levied should be in

accordance with Government / Reserve
Bank of India guidelines / not more than
3% of lending Bank’s PLR

Facilitating Collateral-free Credit to Micro & Small Enterprises

 CGS – Eligible Credit facilities

 Credit facility upto Rs.100 lakh sanctioned to MSEs (both

manufacturing and service sector including small road and
water transport operators, small business, professionals,
self-employed persons and all other service enterprises
under the ambit of MSEs as per RBI guidelines on “Lending
to Priority Sector” but excluding retail trade)
 Both Fund & Non-fund based Credit facilities viz., term loan,
working capital, composite credit, LCs, Guarantees, etc. can
be covered. Credit proposals above Rs.50 lakh will have to
be rated internally and should be of investment grade
 Credit Facility of above Rs.100 lakh can also be covered, but
Guarantee Cover will be limited to Rs.62.50 lakh. No
collateral security / third party guarantee shall be obtained
by the MLI for credit facility above Rs.100 lakh

Facilitating Collateral-free Credit to Micro & Small Enterprises

 CGS – Special inclusions

 Certain activities under Agri-Clinics and Agri-

Business Centres (ACABCs) like Tissue
Culture, Feed Processing & Testing Units,
Honey & Bee product processing units, Seed
Processing Units, Setting up of Information
Kiosks / Cool Chain, etc. made eligible for
guarantee cover under the scheme
 Borrower may be sanctioned distinct /
separate credit facilities, but only credit
facility not backed by collateral security /
third party guarantee can be covered under
the Scheme
Facilitating Collateral-free Credit to Micro & Small Enterprises
 CGS – Extent of Guarantee

Credit facilities extended by more than

one bank and / or financial institution
jointly and / or separately to eligible
borrower upto a maximum of Rs.100
lakh per borrower subject to ceiling
amount of individual MLI or such amount
as may be specified by the Trust, in the
order in which the application for
guarantee cover has been lodged
Facilitating Collateral-free Credit to Micro & Small Enterprises
 CGS – Extent of Guarantee
Maximum Guarantee Cover,
where credit facility is
Borrower Category
Upto Above Rs.5 lakh Above Rs.50 lakh
Rs.5 lakh upto Rs.50 lakh upto Rs.100 lakh
85% of 75% of Amount in Rs.37.50 lakh plus 50%
Amount in Default of amount in default
Micro Enterprises
Default / above Rs.50 lakh /
Rs.4.25 lakh / Rs.37.50 lakh Rs.62.50 lakh
Women Entrepreneurs / 80% of Amount in Default Rs.40 lakh plus 50% of
Units located in North amount in default above
East Region (incl. Sikkim) / Rs.40 lakh Rs.50 lakh / Rs.65 lakh
Rs.37.50 lakh plus 50%
All other category of 75% of Amount in Default / of amount in default
borrowers Rs.37.50 lakh above Rs.50 lakh /
Rs.62.50 lakh

Facilitating Collateral-free Credit to Micro & Small Enterprises

 CGS – Tenure of Guarantee
 Tenure of Guarantee Cover for Term Credit,
Combined Working Capital & Term Credit and
Composite Credit is tenure of Term Credit /
Composite Credit or loan termination date,
whichever is earlier
 Where Working Capital facility alone is covered,
the tenure is for a block of five years or loan
termination date, whichever is earlier. Thereafter,
MLI should apply for renewal of Guarantee Cover
 If tenure of Term Loan is 3 years, tenure of
working capital will also be 3 years. After 3 years,
if guarantee cover is to be continued for working
capital, application for renewal to be lodged online

Facilitating Collateral-free Credit to Micro & Small Enterprises

 CGS – Cost of Guarantee

Upfront Guarantee Fee

Annual
Credit Facility North East Service
Region Others Fee
(incl. Sikkim)
Upto Rs.5 lakh 0.75% 1.00% 0.50%

Above Rs.5 lakh to Rs.50 lakh 0.75% 1.50% 0.75%

Above Rs.50 lakh to Rs.100 lakh 1.50% 1.50% 0.75%

MLIs at their discretion may pass on the cost of Guarantee Cover to the
borrowers. However, responsibility of payment of Guarantee / Service
Fee to the Trust will be on MLIs

Facilitating Collateral-free Credit to Micro & Small Enterprises

 CGS - Yearwise Performance
(as at October 31, 2009)

MLIs availing Guarantees Amount

Period
guarantee cover approved (Rs. Crore)
FY2001 9 951 6.06
FY2002 16 2296 29.52
FY2003 22 4955 58.67
FY2004 29 6603 117.60
FY2005 32 8451 267.46
FY2006 36 16284 461.91
FY2007 40 27457 704.53
FY2008 47 30285 1055.84
FY2009 57 53708 2199.40
FY2010 (Nov
69 78266 3589.86
30,2009)
Total (May not tally due to modification/ cancellation) 227457 8328.89

Facilitating Collateral-free Credit to Micro & Small Enterprises

 CGS – Slabwise Coverage
(as at November 15, 2009)

Amount % age
Slab Number
(Rs. Crore) No. Amount

Upto Rs. 5 lakh 184069 2202.15 83 27

Above Rs.5 lakh 37866 5965.14 17 73

TOTAL 221935 8167.29

Facilitating Collateral-free Credit to Micro & Small Enterprises

 CGS – Overall Impact
(As on November 15, 2009)

Cumulative Guarantees approved

No. of MSE units / facilities 2,21,935

Loan Amount (extended by MLIs) Rs.8167.29 crore

Turnover of guaranteed units Rs. 54065 crore

Exports by guaranteed units Rs. 1669 crore

Employment generation (No. of persons) 28.73 lakh

No. of MLIs registered 97

Facilitating Collateral-free Credit to Micro & Small Enterprises

 CGS – Top 10 MLIs –
FY2010
(Based on approvals for FY2010 as at November 15, 2009)
SNo MLI No. Amount (Rs. Crore)
1 Punjab National Bank 12687 503.59

2 State Bank of India 12596 474.10

3 Bank of India 10358 671.35

4 Canara Bank 4297 171.70

5 Allahabad Bank 4143 113.23

6 State Bank of Bikaner & Jaipur 3123 32.50

7 Syndicate Bank 2251 109.8

8 Bank of Baroda 2170 158.06

9 Indian Overseas Bank 1857 58.47

10 Union Bank of India 1846 100.75

Facilitating Collateral-free Credit to Micro & Small Enterprises

 CGS – Benefits
 Credit facilities guaranteed under the Scheme carry Zero per
cent Risk Weight / Provisioning for guaranteed portion (RBI
Circular DBOD No.BP.BC.128/21.04.048/00-01 dated June 07,
2001)
 Reduction in waiting period for recovery through legal process,
realising the time value of money with hassle free & quick
recovery of major portion of defaulted amount
 Quicker dispensation of credit due to time saved on security
creation / Title related issues of collaterals
 In case of collateral, it is Bank’s responsibility to insure /
secure the property when asset is taken over
 Overall significant saving in Time & Energy cost of Bank’s
Human Resources
Facilitating Collateral-free Credit to Micro & Small Enterprises
 CGS - Benefits

Credit Guarantee Scheme - A tool for

 Widening of credit portfolio

 Better management of risk

 Faster recovery of dues

 Enhancement of profitability

Facilitating Collateral-free Credit to Micro & Small Enterprises

 Role of Credit Guarantee

 A weak project cannot be turned into a viable

one with guarantee cover and is only an
additional comfort to the lender, as is
collateral security
 Banks should evaluate credit applications by
using prudent banking judgement / due
diligence / business discretion in supporting
only viable projects under the Credit
Guarantee Scheme and conduct the
account(s) of the borrowers with normal
banking prudence
Facilitating Collateral-free Credit to Micro & Small Enterprises
 The last couple of years of years have seen
a sharp increase in the number of
guarantees being approved which is a
growing sign of acceptance of the scheme
amongst banks and other MLIs. During
FY2009, an all time high of 53,708
guarantees amounting to Rs 2199 crore
were approved. In the current financial
year, so far 78262 guarantees approvals for
Rs 3589 crore have been extended.
Cumulatively, 227457 guarantees
amounting to Rs 8328.89 crore have been
approved under the scheme as on
November 30, 3009.

Facilitating Collateral-free Credit to Micro & Small Enterprises

 We welcome suggestions, advice and
other inputs to improve our services
Contact us at :
Credit Guarantee Fund Trust for Micro and Small Enterprises
7th Floor, SME Development Centre
Plot No.C-11, ‘G’ Block
Bandra Kurla Complex
Mumbai-400051
Phone : 022-26541803-07, 61437800 (24 lines)
Fax : 022-26541821
Website : www.cgtmse.in
Facilitating Collateral-free Credit to Micro & Small Enterprises
 THANK
YOU
www.cgtmse.in

Facilitating Collateral-free Credit to Micro & Small Enterprises