CGTMSE Scheme

• 29 Apr 2023

For Prelims: CGTMSE Scheme, MSMEs, SIDBI, Initiatives for MSME Credit

For Mains: MSMEs - Government Policies & Interventions, Initiatives for their promotion

Why in News?

The Union Minister for MSME recently launched the revamped Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) Scheme.

What is the CGTMSE Scheme?

• About:
  • It was launched in 2000 by the Government of India (GoI) to make available collateral-free credit to the micro and small enterprise sector.
• Scope:
  • Both the existing and the new enterprises are eligible to be covered under the scheme.
• Funding:
  • The corpus of CGTMSE is contributed by the GoI and SIDBI in the ratio of 4:1 respectively.
  • The Ministry of MSMEs, and Small Industries Development Bank of India (SIDBI) established a trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement the CGTMSE Scheme.
• Financial Inclusion for MSMEs:
  • While launching the revamp of CGTMSE, it was announced that CGTMSE will collaborate with National Institute for MSME, Hyderabad for setting up a Centre of Financial Inclusion.
  • The Centre is expected to provide financial literacy and credit counselling to MSEs, thus helping them to better utilize the benefits of the CGTMSE Scheme.

• Note: SIDBI was set up in April 1990 under an Act of the Indian Parliament, acts as the Principal Financial Institution for the Promotion, Financing, and Development of the MSME sector as well as for coordination of functions of institutions engaged in similar activities.

What is the Revamped CGTMSE?

• Major Changes:
  • The revamped version of the CGTMSE Scheme has been provided with an additional corpus support of ₹9,000 crore in the Union Budget for FY 2023-24 to provide a guarantee for an additional ₹2 lakh crore to MSEs.
  • Other major changes made in the revamped version include:
    • Reduction in guaranteed fees for loans up to ₹1 crore by 50%.
    • Raising of ceiling for guarantee from ₹2 crore to ₹5 crore.
    • Raising the bar for claim settlement without taking legal action from the previous limit of Rs. 5 lakhs to Rs. 10 lakhs.
• Significance:
  • The reduced guaranteed fees will make it easier for MSEs to avail loans.
  • The increased ceiling for guarantee and threshold limit for claim settlement will provide better protection to lenders in case of any default by the borrower.
  • The scheme is expected to boost credit flow to MSEs, thus creating more employment opportunities in the country.
  • These changes have been made to improve the accessibility, affordability and availability of credit to MSEs, especially in the wake of the COVID-19 pandemic and its impact on their businesses.

What are the Other Initiatives Related to MSME Credit?

• Prime Minister’s Employment Generation programme (PMEGP): It is a credit linked subsidy scheme, for setting up of new micro-enterprises and to generate employment opportunities in rural as well as urban areas of the country.
• Scheme of Fund for Regeneration of Traditional Industries (SFURTI): It aims to properly organize the artisans and the traditional industries into clusters and thus provide financial assistance to make them competitive in today's market scenario.
• Interest Subvention Scheme for Incremental Credit to MSMEs: It was introduced by the RBI wherein relief is provided upto 2% of interest to all the legal MSMEs on their outstanding fresh/incremental term loan/working capital during the period of its validity.
• Interest Subsidy Eligibility Certificate (ISEC): Under the scheme, Khadi and Polyvastra producing institutions in mobilizing the capital funds from banking institutions.
• MSME Loan in 59 Minutes: Online portal for quick and hassle-free loans up to Rs. 5 crore. It uses advanced algorithms to analyse data and provide in-principle approval within 59 minutes
• MUDRA Loan Schemes for MSMEs: Provides loans up to Rs. 10 lakh to micro and small enterprises engaged in manufacturing, trading, and services sectors. Collateral-free loans with low interest rates
• National Small Industries Corporation (NSIC): Facilitates MSMEs to obtain credit from various banks and financial institutions by offering competitive interest rates and minimum documentation.
• Credit Link Capital Subsidy Scheme (CLCSS) for Technology Upgradation:
  • Provides capital subsidy of 15% (up to Rs. 15 lakh) to MSEs for upgrading their technology and installing new plant and machinery.
  • Covers more than 50 sub-sectors.
  • Aims to improve the quality, productivity, and competitiveness of MSEs.

Source: PIB