Welcome to the

Session
CGTMSE
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 Guarantee Framework - Need

 Banks exposed to risk while lending

 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

 CGTMSE - Establishment

 Set up as a Trust on August 1, 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.2158.79 crore, Committed Corpus – Rs.2500 crore
 Credit Guarantee Fund Scheme (CGS) for Micro and
Small Enterprises is operated by the Trust
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 Objective
The main objective is that the lender should give importance to
project viability and secure the credit facility purely on the
primary security of the assets financed.
The other objective is that the lender availing guarantee facility
should endeavor to give composite credit to the borrowers so that
the borrowers obtain both term loan and working capital
facilities from a single agency.
The Credit Guarantee Scheme (CGS) seeks to reassure the lender
that, in the event of a 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 50/ 75 / 80/ 85 per cent (as per the current structure) of the
credit facility
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 CGS - Main Features
 Micro & Small Enterprises as per MSMED Act eligible
 Both Manufacturing and Service sectors covered. Includes
Small Road and water transport operators, small business,
professional and self employed persons and all other
service enterprises under the ambit of Micro & Small
Enterprises
 All fund / non-fund based facility covered
 Credit for retail trade, educational / training institutions,
Agriculture and allied sectors and SHGs are not eligible for
the present
 Cardinal Principles
 The entire credit facility has to be given without collateral and/or third
party guarantee.
 Loans may be secured by Primary Security and Guarantors Net worth.
 Primary Security & Third party
guarantee
Primary security : Primary security is the asset created out of the credit
facility extended to the borrower and / or which are directly associated
with the business / project of the borrower for which the credit facility has
been extended.

Example: Land, Plant & Machinery or any other business property in the
name of a proprietor or unit, if unencumbered (free of debt or other
financial liability), can be taken as primary security.

Guarantee: As per the extent guidelines no third party guarantee should be

obtained if the account is to be covered under the Credit Guarantee
Scheme. However, in case the constitution of the borrower is proprietary
or partnership, the personal guarantee of proprietor/ partner is not
treated as third party guarantee. Similarly, Personal guarantee of
directors, where borrower constitution is a company will not be treated
as third party guarantee. Personal guarantee of spouse, friend etc. will
be treated as third party guarantee.
 Cardinal Principles
 The entire credit facility has to be given without collateral and/or third
party guarantee.
 Loans may be secured by Primary Security and Guarantors Net worth
 Credit facilities extended by more than one bank and/or financial
institution jointly and/or separately to eligible borrower up to a maximum
limit of 100 lakh per borrower
 Where as for our RRBs the Limit per borrower is Rs. 50 lakh
 In our APGVB limit is Rs. 10 lakh.
 The dues of the borrowing unit to the lending institution should not have
become bad or doubtful of recovery as on material date.
 MLI should obtain the guarantee cover for credit facility sanctioned
before the end of subsequent quarter.