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Tata Capital > Blog > Loan for Business > CGTMSE Scheme: Full form, Features and Eligibility

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CGTMSE Scheme: Full form, Features and Eligibility

CGTMSE Scheme: Full form, Features and Eligibility

The Micro and Small Enterprises (MSEs) play a vital role in the Indian economy. However, these enterprises often need help accessing credit due to weak credit history and collateral.

This Credit Guarantee Scheme (CGS) addresses this issue by providing credit guarantees to financial institutions, enabling them to extend collateral-free credit to MSEs. In fact, during FY 2023, the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) has issued guarantees amounting to ₹1,04,781 crore.

Whether you're a startup enthusiast or a seasoned business leader, understanding the role of CGTMSE could be pivotal for your entrepreneurial journey.

In this blog post, we cover various CGTMSE scheme details. Let's find out how CGTMSE can support your business goals.

What is the CGTMSE scheme?

CGTMSE’s full form is Credit Guarantee Fund Trust for Micro and Small Enterprises. This scheme was initiated in 2000 by the Government of India and SIDBI. It aims to foster the growth of Micro and Small Enterprises (MSEs).

The CGTMSE scheme serves as a vital resource for MSEs, addressing the challenge of accessing financial support from traditional lenders.

Under this scheme, MSEs can secure credit facilities without the burden of providing tangible collateral or third-party guarantees. Instead, the scheme offers a guarantee cover to lending institutions, reducing their risk in case of borrower default. This reduces the lending risk for financial institutions and enhances the creditworthiness of MSEs.

The CGTMSE scheme is inclusive, catering to MSEs across diverse manufacturing, services, and retail sectors. It prioritises inclusivity by empowering economically weaker sections, women entrepreneurs, and those in rural or underserved areas.

What are the CGTMSE scheme eligibility criteria?

The eligibility criteria for the CGTMSE loan and scheme are as follows:

1. Micro and Small Enterprises (MSEs): Both existing and new MSEs operating in various sectors, including manufacturing and services, are eligible.

2. Size of enterprises: MSEs of all sizes are eligible, ensuring accessibility for budding entrepreneurs and established businesses.

3. Lending institutions: Participation is open to a wide range of lending institutions, including National Small Industries Corporation (NSIC), Non- Banking Financial Companies (NBFC), North Eastern Development Finance Corporation Ltd (NEDFi), Regional Rural Banks (RRBs), Scheduled Commercial Banks (SCBs), Small Finance Banks (SFBs), and Small Industries Development Bank of India (SIDBI).

4. Special provisions: Special provisions are made for specific categories, such as women entrepreneurs and businesses in the Northeast Region (NER), offering enhanced guarantee cover and tailored credit facilities.

What are the key features of the CGTMSE scheme?

The CGTMSE scheme offers several key features that make it attractive for MSEs:

1. The scheme operates within the framework of RBI guidelines, ensuring transparency and consistency in CGTMSE loan interest rate.

2. MSEs engaged in manufacturing and services, excluding specific sectors like educational institutions and agriculture-related activities, are eligible for coverage.

3. The CGTMSE loan amount is between Rs. 50 lakhs to Rs. 5 crores, depending on the type of lending institution.

4. CGTMSE provides guarantee coverage ranging from 75% to 85%, reducing the risk for lenders and encouraging them to extend credit to MSEs without requiring collateral or third-party guarantees.

5. One of the most significant advantages of the CGTMSE scheme is that it eliminates the need for collateral or third-party guarantees, making credit more accessible to MSEs.

What are the benefits of the CGTMSE scheme?

The CGTMSE scheme offers several benefits for MSEs:

1. Financial inclusion: By providing collateral-free credit, the scheme promotes financial inclusion, enabling MSEs, especially those from marginalised sections, to access formal credit facilities.

2. Risk mitigation: The guarantee provided by CGTMSE mitigates the risk for lenders, encouraging them to extend credit to MSEs that may otherwise be deemed too risky.

3. Business growth: Access to credit under the scheme facilitates business growth, allowing MSEs to invest in expansion, technology adoption, and market diversification.

4. Empowerment: The scheme empowers MSEs to fulfil their potential, driving entrepreneurship, innovation, and job creation.

How does the CGTMSE scheme work?

Here's a breakdown of how the CGTMSE loan works:

Step 1: MSEs must meet the eligibility criteria and gather all required documents.

Step 2: Choose a suitable Member Lending Institution (MLI) under the CGTMSE scheme based on their offerings and terms.

Step 3: Submit the business loan application and the required documents to the chosen MLI.

Step 4: The MLI reviews the application, conducts due diligence, and assesses the viability of the business proposal.

Step 5: If the application meets the MLI's criteria, they sanction the loan amount per their internal policies and the CGTMSE scheme guidelines.

Step 6: The MLI applies to CGTMSE for guarantee cover on behalf of the borrower.

Step 7: The borrower pays the applicable guarantee fee and service charges to CGTMSE registration as per the approved rates.

Step 8: The MLI disburses the sanctioned loan amount to the borrower's account upon approval of the guarantee cover.

Step 9: The borrower repays the loan per the agreed schedule, including principal and interest payments.

The borrower must comply with all terms and conditions of the loan agreement and ensure timely repayment throughout the loan tenure.

Required documents for business loan:

Looking to benefit from a CGTMSE loan for a new business? Here is a set of CGTMSE loan documents you’ll need to submit:

1. Duly filled CGTMSE loan application form

2. Business incorporation or registration certificate

3. Business project report outlining the proposed venture's viability and financial projections

4. CGTMSE loan coverage letter issued by the lending institution

5. Copy of loan approval from the bank

Final thoughts

Over the years, the CGTMSE scheme has promoted entrepreneurship, innovation, and economic development by providing crucial financial support to MSEs across India. It has facilitated the growth and sustainability of numerous small businesses, thereby improving overall socio-economic progress and prosperity.

Looking to secure financial support for your business? Explore Tata Capital's MSME loan options tailored to meet your needs. Whether you're a small enterprise or a growing business, we're here to help you thrive.

Visit the Tata Capital website or download the Tata Capital App to learn more about our financing options.

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