Micro, Small & Medium Enterprises
New Nomenclature & Classification
Enterprises
Manufacturing
(Ceiling on investment in Plant & Machinery)
Service
(Ceiling on investment in Equipment)
Rs.25 lakh
Rs.5 crore
Rs.10 crore
Micro
Small
Medium
Rs. 10 lakh
Rs.2 crore
Rs.5 crore

Micro & Small Enterprises - Importance
 Provide employment to more than 40 Million persons
 Largest employment generating sector after agriculture
 Employment potential at low capital cost
 Constitute 95
% of industrial units
 Total of 13 Million registered / unregistered MSEs
 Key contributors to national economy
 45% of manufacturing output
 40% of total exports
 9% of Gross Domestic Product
Facilitating Collateral-free Credit to Micro & Small Enterprises

Policy makers world over
 Strive for equitable wealth distribution
 Desire to direct credit flow to specific sectors
 Seek to evolve mechanisms to achieve developmental objectives
 Aspire for financial inclusion / overall economic development
 Govern Banks for social empowerment
Facilitating Collateral-free Credit to Micro & Small Enterprises

 Banks exposed to various risks while lending
 Default 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
Facilitating Collateral-free Credit to Micro & Small Enterprises

 Advocated as effective credit supplementation tool
 Largely promoted / sponsored by Government
 Dates back to 1936 in Japan
 Gained acceptance in Europe – 1950’s
 Well evolved in most developed economies
 Multiple agencies operate in some countries
Facilitating Collateral-free Credit to Micro & Small Enterprises

 Export Credit Guarantee Corporation of India Ltd – established in
1957 – to cover risk of exporting on credit
 Credit Guarantee Scheme for Small Scale Industries introduced in
July, 1960 with Reserve Bank of India (RBI) as Administrator. RBI operated the scheme up to March, 1981
 Credit Guarantee Corporation of India Ltd – established in 1971 – to guarantee loans under priority sector
 Merged with Deposit Insurance Corporation in 1978 to form
Deposit Insurance and Credit Guarantee Corporation (DICGC)
 Credit guarantee schemes of the Corporation discontinued as the credit institutions gradually opted out of the scheme
Facilitating Collateral-free Credit to Micro & Small Enterprises

 Set up as a Trust in August, 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.1907 crore ; Committed Corpus –
Rs.2500 crore
Facilitating Collateral-free Credit to Micro & Small Enterprises

 Shift from collateral to merit based lending
 Act as catalyst of entrepreneurship promotion
 Facilitate institutional credit flow to MSE sector
 Address growth constraints of MSE sector
 Enable financial inclusion / employment generation
 Revive confidence in credit guarantee mechanism
Facilitating Collateral-free Credit to Micro & Small Enterprises

 Operated through Banks / Lending Institutions registered as Member Lending Institutions (MLIs)
 Scheduled Commercial Banks / select Regional
Rural Banks (RRBs) / other lending institutions as approved by Ministry of MSME eligible to register as MLIs
 97 Banks / RRBs / other lending institutions registered as MLIs with CGTMSE
 Operations done through web-based B2B E-
Business software
Facilitating Collateral-free Credit to Micro & Small Enterprises

 Collateral Security – Security provided in addition to the primary security, in connection with the credit facility extended to the borrower
 Primary Security – Assets created out of the credit facility extended and / or existing unencumbered assets which are directly associated with the project or business for which the credit facility has been extended
Facilitating Collateral-free Credit to Micro & Small Enterprises

 Lender should extend credit without obtaining any Collateral Security / Third
Party Guarantee
 Interest Rate levied should be in accordance with Government / Reserve
Bank of India guidelines / not more than
3% of lending Bank’s PLR
Facilitating Collateral-free Credit to Micro & Small Enterprises

 Credit facility upto Rs.100 lakh sanctioned to MSEs (both manufacturing and service sector including small road and water transport operators, small business, professionals, self-employed persons and all other service enterprises under the ambit of MSEs as per RBI guidelines on “Lending to Priority Sector” but excluding retail trade )
 Both Fund & Non-fund based Credit facilities viz., term loan, working capital, composite credit, LCs, Guarantees, etc. can be covered.
Credit proposals above Rs.50 lakh will have to be rated internally and should be of investment grade
 Credit Facility of above Rs.100 lakh can also be covered, but
Guarantee Cover will be limited to Rs.62.50 lakh. No collateral security / third party guarantee shall be obtained by the MLI for credit facility above Rs.100 lakh
Facilitating Collateral-free Credit to Micro & Small Enterprises

 Certain activities under Agri-Clinics and Agri-
Business Centres (ACABCs) like Tissue
Culture, Feed Processing & Testing Units,
Honey & Bee product processing units, Seed
Processing Units, Setting up of Information
Kiosks / Cool Chain, etc. made eligible for guarantee cover under the scheme
 Borrower may be sanctioned distinct / separate credit facilities, but only credit facility not backed by collateral security / third party guarantee can be covered under the Scheme
Facilitating Collateral-free Credit to Micro & Small Enterprises

 Credit facilities extended by more than one bank and / or financial institution jointly and / or separately to eligible borrower upto a maximum of Rs.100
lakh per borrower subject to ceiling amount of individual MLI or such amount as may be specified by the Trust, in the order in which the application for guarantee cover has been lodged
Facilitating Collateral-free Credit to Micro & Small Enterprises

Borrower Category
Micro Enterprises
Women Entrepreneurs /
Units located in North
East Region (incl. Sikkim)
All other category of borrowers
Upto
Rs.5 lakh
85% of
Amount in
Default /
Rs.4.25 lakh
Maximum Guarantee Cover, where credit facility is
Above Rs.5 lakh upto Rs.50 lakh
Above Rs.50 lakh upto Rs.100 lakh
75% of Amount in
Default
/ Rs.37.50 lakh
Rs.37.50 lakh plus 50% of amount in default above Rs.50 lakh /
Rs.62.50 lakh
80% of Amount in Default
/ Rs.40 lakh
75% of Amount in Default /
Rs.37.50 lakh
Rs.40 lakh plus 50% of amount in default above
Rs.50 lakh / Rs.65 lakh
Rs.37.50 lakh plus 50% of amount in default above Rs.50 lakh /
Rs.62.50 lakh
Facilitating Collateral-free Credit to Micro & Small Enterprises

 Tenure of Guarantee Cover for Term Credit,
Combined Working Capital & Term Credit and
Composite Credit is tenure of Term Credit /
Composite Credit or loan termination date, whichever is earlier
 Where Working Capital facility alone is covered, the tenure is for a block of five years or loan termination date, whichever is earlier. Thereafter,
MLI should apply for renewal of Guarantee Cover
 If tenure of Term Loan is 3 years, tenure of working capital will also be 3 years. After 3 years, if guarantee cover is to be continued for working capital, application for renewal to be lodged online
Facilitating Collateral-free Credit to Micro & Small Enterprises

Credit Facility
Upto Rs.5 lakh
Above Rs.5 lakh to Rs.50 lakh
Above Rs.50 lakh to Rs.100 lakh
Upfront Guarantee Fee
North East
Region
(incl. Sikkim)
0.75%
Others
1.00%
0.75% 1.50%
1.50% 1.50%
Annual
Service
Fee
0.50%
0.75%
0.75%
MLIs at their discretion may pass on the cost of Guarantee Cover to the borrowers. However, responsibility of payment of Guarantee / Service
Fee to the Trust will be on MLIs
Facilitating Collateral-free Credit to Micro & Small Enterprises

(as at October 31, 2009)
Period
MLIs availing guarantee cover
FY2001
FY2002
FY2003
FY2004
FY2005
FY2006
FY2007
FY2008
FY2009
FY2010 (Nov
30,2009)
69
Total
(May not tally due to modification/ cancellation)
9
16
22
29
32
36
40
47
57
Guarantees approved
951
2296
4955
6603
8451
16284
27457
30285
53708
78266
227457
Amount
(Rs. Crore)
6.06
29.52
58.67
117.60
267.46
461.91
704.53
1055.84
2199.40
3589.86
8328.89
Facilitating Collateral-free Credit to Micro & Small Enterprises

Slab
Upto Rs. 5 lakh
Above Rs.5 lakh
TOTAL
Number
184069
(as at November 15, 2009)
Amount
(Rs. Crore)
% age
No. Amount
2202.15 83 27
37866
221935
5965.14 17
8167.29
73
Facilitating Collateral-free Credit to Micro & Small Enterprises
Facilitating Collateral-free Credit to Micro & Small Enterprises

(As on November 15, 2009)
Cumulative Guarantees approved
No. of MSE units / facilities
Loan Amount (extended by MLIs)
Turnover of guaranteed units
Exports by guaranteed units
2,21,935
Rs.8167.29 crore
Rs. 54065 crore
Rs. 1669 crore
Employment generation (No. of persons)
No. of MLIs registered
28.73 lakh
97
Facilitating Collateral-free Credit to Micro & Small Enterprises

SNo
(Based on approvals for FY2010 as at November 15, 2009)
MLI
1 Punjab National Bank
No.
12687
Amount (Rs. Crore)
503.59
2 State Bank of India
3 Bank of India
12596
10358
474.10
671.35
4 Canara Bank
5 Allahabad Bank
6 State Bank of Bikaner & Jaipur
7 Syndicate Bank
8 Bank of Baroda
4297
4143
3123
2251
2170
171.70
113.23
32.50
109.8
158.06
9 Indian Overseas Bank 1857 58.47
10 Union Bank of India 1846 100.75
Facilitating Collateral-free Credit to Micro & Small Enterprises

 Credit facilities guaranteed under the Scheme carry Zero per cent Risk Weight / Provisioning for guaranteed portion (RBI
Circular DBOD No.BP.BC.128/21.04.048/00-01 dated June 07,
2001)
 Reduction in waiting period for recovery through legal process, realising the time value of money with hassle free & quick recovery of major portion of defaulted amount
 Quicker dispensation of credit due to time saved on security creation / Title related issues of collaterals
 In case of collateral, it is Bank’s responsibility to insure / secure the property when asset is taken over
 Overall significant saving in Time & Energy cost of Bank’s
Human Resources
Facilitating Collateral-free Credit to Micro & Small Enterprises





Facilitating Collateral-free Credit to Micro & Small Enterprises

 A weak project cannot be turned into a viable one with guarantee cover and is only an additional comfort to the lender, as is collateral security
 Banks should evaluate credit applications by using prudent banking judgement / due diligence / business discretion in supporting only viable projects under the Credit
Guarantee Scheme and conduct the account(s) of the borrowers with normal banking prudence
Facilitating Collateral-free Credit to Micro & Small Enterprises

 The last couple of years of years have seen a sharp increase in the number of guarantees being approved which is a growing sign of acceptance of the scheme amongst banks and other MLIs. During
FY2009, an all time high of 53,708 guarantees amounting to Rs 2199 crore were approved. In the current financial year, so far 78262 guarantees approvals for
Rs 3589 crore have been extended.
Cumulatively, 227457 guarantees amounting to Rs 8328.89 crore have been approved under the scheme as on
November 30, 3009.
Facilitating Collateral-free Credit to Micro & Small Enterprises

We welcome suggestions, advice and other inputs to improve our services
Contact us at :
Credit Guarantee Fund Trust for Micro and Small Enterprises
7 th Floor, SME Development Centre
Plot No.C-11, ‘G’ Block
Bandra Kurla Complex
Mumbai-400051
P hone : 022-26541803-07, 61437800 (24 lines)
Fax : 022-26541821
Website : www.cgtmse.in
Facilitating Collateral-free Credit to Micro & Small Enterprises

www.cgtmse.in
Facilitating Collateral-free Credit to Micro & Small Enterprises