What is Credit Guarantee Trust Fund for Micro Small Enterprises (CGTMSE)
It is one of the government-sponsored programmes for micro, small, and medium-sized businesses (MSMEs). The Ministry of Micro, Small, and Medium Enterprises of the Government of India inaugurated it on August 30, 2000.
The major goal of establishing this trust is to provide financial support to MSMEs without the use of a third-party guarantee or collateral. This system guarantees lenders that if they default, the trust will provide a guarantee cover in the ratio of 50, 75, 80, or 85 per cent of the amount given.
The primary goal of CGTMSE is:
- Credit guarantees will be provided to financial institutions that make loans to SMEs and MSMEs. This programme is beneficial as a main source of assistance to first-generation entrepreneurs in realising their dream of establishing a unit of their own Micro and Small Enterprise (MSE).
- To encourage entrepreneurs to take out collateral-free loans in order to launch businesses without fear of default. If the borrower defaults, the trust fund lending institution will reimburse up to a set amount.
- CGTMSE has created a new “Hybrid Security” for products allowing guarantee cover for the portion of credit facility not covered by collateral security.
- Guarantees a return of up to 75% (85% in some situations) of the loan amount, with a maximum cap of Rs.62.5 – 65 lakh for loans up to 50 lakh.
- Trust will issue a maximum guarantee of 50% for loans over Rs.50 lakh but less than Rs.100 lakh.
- It offers a guarantee of up to 85% to micro firms for loans up to Rs. 5 lakh.
- It also guarantees payback of up to 80% of the loan amount for MSMEs led by women, as well as loans supplied in the North East Region (NER).
How to opt for the CGTMSE scheme?
- The first and most important step in deciding on this scheme is to create a proper company plan that includes all financial and other aspects. The business plan must be written in such a way that it explains the project’s viability.
- Once the business strategy is complete, an important decision must be made on which lender bank will be approached. When a choice has been reached, the application and business plan should be presented to the bank.
- Following that, the bank will review and verify the information provided in the application, as well as the model of the submitted project.
- Once the application has been validated, the bank will forward it to the Credit Guarantee Fund Trust for Micro and Small Enterprises, where it will be reviewed again. If it is authorised, the fund will tell the bank to release the funds for the company. When the permission is obtained, the company must pay the CGTMSE guarantee and service fee to the borrowers.
The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) offers numerous advantages to both new and current MSMEs. Its main advantage is that you can obtain credit facility coverage even if you have no or little experience in starting a firm. The MSME ministry has given the scheme appropriate attention and has been closely monitoring its progress.