Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)

What is CGTMSE?

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is a trust set up jointly by the Ministry of Micro, Small and Medium Enterprises and the Small Industries Development Bank of India (SIDBI). It has been operating its flagship Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGS-I) since 1 August 2000, covering eligible credit facilities extended from 1 June 2000 onwards.

CGTMSE solves one specific problem: banks refuse loans to small businesses that have no property to mortgage. Under CGS-I the Trust stands behind the loan, so the lender can sanction credit without collateral security and without a third party guarantee and still recover most of its money if the borrower defaults.

According to the CGTMSE portal, the Trust has cumulatively approved about 1.41 crore guarantees worth roughly Rs 13.67 lakh crore, through 322 registered Member Lending Institutions.

Key objectives

• Make the lender's decision on a micro or small enterprise loan turn on the viability of the project, not on the security available.
• Reduce the cost and delay of arranging collateral for first-generation entrepreneurs.
• Push credit into under-served categories: women, SC/ST and PwD entrepreneurs, Aspirational Districts and the North East.

Main features

• Collateral-free and third-party-guarantee-free credit facilities, both term loans and working capital, fund-based and non-fund-based.
• Guarantee ceiling raised to Rs 10 crore per borrower, up from Rs 500 lakh effective 1 April 2023 and Rs 200 lakh before that.
• Coverage of 75 to 85 per cent of the amount in default, depending on the borrower category and the size of the facility.
• Hybrid Security model so that partly-secured loans can still get cover on the unsecured portion.
• Annual Guarantee Fee from 0.37 per cent, with discounts for good-performing lenders and for priority borrower categories.

What is the extent of CGTMSE guarantee cover?

The table below reflects the CGS-I scheme document for guarantees approved on or after 1 April 2023. Percentages are of the amount in default, not of the sanctioned loan.

Guarantee tenure. For a term loan, the guarantee runs the agreed tenure of the credit. Where only working capital is extended, the cover runs for a block of 5 years and can be renewed after the block; there is no maximum coverage period cap for a working capital account.

What does the CGTMSE guarantee fee cost?

Annual Guarantee Fee is charged on the guaranteed amount for the first year and on the outstanding amount for the rest of the tenure. These are the standard rates under CGS-I for guarantees approved or renewed on or after 1 April 2023:

The standard rate applies across all activities including trading. CGTMSE grades its member lending institutions on portfolio quality. A low-risk lender gets a 10 per cent discount on the standard rate, while a high-risk lender is charged a risk premium of up to 70 per cent above it. A further 10 per cent concession applies to women, SC/ST, PwD and Agniveer-promoted borrowers, to units in the North East, Sikkim, J&K and Ladakh up to Rs 50 lakh, to units in Aspirational Districts and to ZED-certified MSEs.

Who is eligible for CGTMSE cover?

A borrower can be covered if:

• The unit is a new or existing Micro or Small Enterprise as defined under the MSMED Act, with a valid Udyam Registration.
• The credit facility is sanctioned without collateral security and without any third party guarantee, or the unsecured portion is being covered under the Hybrid Security model.
• The lender is a registered CGTMSE Member Lending Institution. A scheduled commercial bank, RRB, small finance bank, financial institution or an eligible NBFC under CGS-II.
• The account is standard and regular as per RBI norms on the material date, is not in SMA status, and was not restructured or in SMA-2 in the year before the guarantee application.
• The activity is one CGTMSE covers. The CGS-I document confirms that trading, retail and wholesale, is an eligible activity for all MLIs including RRBs, and that educational and training institutions were also made eligible on the same terms as other activities.

A credit facility is not eligible if:

• Risks on it are already covered by the Deposit Insurance and Credit Guarantee Corporation, the Reserve Bank of India, the government, a general insurer or any other guarantor, to the extent so covered.
• It has been covered for guarantee through NCGTC Ltd.
• It does not conform to any law, or to directions of the central government or the Reserve Bank of India in force.
• The borrower has another facility under this or a related scheme on which the guarantee has already been invoked and the dues to the Trust remain unpaid.
• It was sanctioned against collateral security or a third party guarantee, except that under Hybrid Security the unsecured part can still be covered.
• The business or activity has ceased, or the facility has been used to adjust a debt already considered bad or doubtful without the Trust's prior consent.

Borrowers above the Small Enterprise threshold, medium enterprises; are not eligible under CGS-I, which is restricted to micro and small enterprises.

What documents are required for a CGTMSE-backed loan?

How to apply for a CGTMSE-backed loan

You apply for the loan; the lender applies for the guarantee. Keep that sequence in mind, because no bank can charge you for "getting CGTMSE approval".

1. Complete your Udyam Registration on the Udyam portal so the enterprise is formally classified as micro or small.
2. Prepare a project report covering the promoters, the product or service, the machinery or working capital required, projected sales and repayment capacity.
3. Approach a CGTMSE Member Lending Institution — the list of registered MLIs is published on cgtmse.in, and specifically ask for the facility to be sanctioned as collateral-free under the CGTMSE guarantee scheme.
4. Submit the loan application with your KYC, Udyam certificate, PAN, bank statements, financials and, if applicable, your category certificate.
5. Let the branch complete its appraisal and sanction. For larger proposals the MLI must rate the account internally and the rating has to be of investment grade.
6. After sanction, the MLI lodges the guarantee application on the CGTMSE portal and pays the Annual Guarantee Fee; CGTMSE issues the Credit Guarantee Number (CGPAN) once the fee is received.
7. Ask the branch for the CGPAN and the guarantee start date for your record, and confirm in writing that no collateral has been taken on the covered portion.

How to check whether your loan is covered

1. Ask your branch manager for the CGPAN. The unique guarantee number issued by CGTMSE for your facility.
2. Ask for the Annual Guarantee Fee debit entry in your loan account statement, which is the practical proof that the cover is live.
3. If the lender has taken collateral and debited a guarantee fee on the same secured portion, raise it with the branch and then with the bank's nodal officer, under CGS-I only the unsecured portion may be covered.

Common reasons CGTMSE cover is refused or lapses

• Collateral already taken on the full facility, which makes it ineligible.
• Account slipped into SMA or was restructured in the year before the guarantee application.
• Medium enterprise classification, which is outside CGS-I.
• Guarantee fee not paid on time by the lender, which suspends the cover.
• Existing invoked guarantee against the same borrower with dues outstanding to the Trust.
• Borrower ceased the activity for which the facility was granted.

Help and contacts

• CGTMSE toll-free helpline: 1800-222-659
• CGTMSE Mumbai office: 022-6722 1553 / 6753 1313 / 6722 1483, 1st Floor, SIDBI Swavalamban Bhavan, C-11, G-Block, Bandra Kurla Complex, Bandra (East), Mumbai 400051
• Portal: cgtmse.in, which hosts the CGS-I scheme document, circulars and the list of Member Lending Institutions

Getting a CGTMSE-backed loan costs you the guarantee fee and nothing else. No consultant can "arrange" a CGTMSE guarantee for you, the application is made by the bank on its own system, and any fee demanded outside the bank's sanctioned charges is a red flag.