Published On: Wed, Apr 17th, 2019

CGTMSE scheme: Objective, Features and Working

MSMEs’ contribution to India’s GDP is around 30%, making them an integral component of the nation’s economic activity. However, this segment has always suffered from underfinancing. Banks are oftentimes hesitant to offer business loans as a majority of MSMEs are informal and don’t have proper books of accounts. In other cases, MSMEs are also start-ups and don’t have adequate vintage. This means they’re forced to pledge collateral to get business finance, a condition that acts as a huge deterrent to MSMEs when it comes to borrowing money.

photo/ Gerd Altmann

To help solve this problem, the Ministry of Micro, Small and Medium Enterprises, Government of India, and the Small Industries Development Bank of India (SIDBI) launched the Credit Guarantee Fund Trust for Micro and Small Enterprises, also known as the CGTMSE scheme.

What is the main objective of the CGTMSE scheme?

Since MSMEs find pledging collateral to be a deterrent, the CGTMSE scheme offers a credit guarantee to the lenders offering business loans to MSMEs and SMEs. This allows them to access the finance they need easily and on time.

How does the CGTMSE scheme work?

Since its goal is to help businesses get off the ground and flourish, the CGTMSE scheme offers a credit guarantee up to a certain amount in case you default on the loan.

  • It offers a guarantee of up to 85% to microenterprises for a credit facility of up to Rs.5 lakh
  • It offers a guarantee of up to 80% for MSMEs headed by women as well as for MSMEs from North Eastern states
  • It offers a guarantee up to 75% (in some cases higher) with a maximum cap of Rs.62.50–Rs.65 lakh for a credit facility up to Rs.50 lakh
  • It offers a guarantee up to 50% for a credit facility of more than Rs.50 lakh, with Rs.1 crore as the limit.

In exchange for the credit guarantee offered to you by the CGTMSE scheme, you have to pay a fee. This depends on the amount you have borrowed as a loan and is 0.75%  if you take less than Rs.5 lakh and 0.85% if you borrow between Rs.5 lakh–Rs.2 crore.

Applying for the CGTMSE scheme

To apply, you can approach a financial institution with a business plan and request finance. The lender will evaluate your business model and assess its viability first. Once the lender is convinced, it will forward your application to CGTMSE. The Trust will scrutinise your application again to confirm that it is worthy of the sanction and then give a go-ahead to the lender to release funds.

Needless to say, this process is time consuming as there are two levels of verification before you can avail the business finance you need. In light of this, it is worth considering an alternative option. One worthy contender is a MSME/SME Loan from Bajaj Finserv. This is a customised business loan that is collateral-free and offers financing of up to Rs.30 lakh. With easy eligibility requirements, minimal documentation and approval in under 24 hours, it’s a quick, convenient option. It carries a nominal business loan interest rate, and to expedite your application further, you can check your pre-approved offer before you apply.

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About the Author

- Rupesh Singh is freelance writer and founder of moneyoutline.com You can follow him on Google + & Facebook.


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