Credit and Finance for MSMEs: The credit guarantee fund trust for micro and small enterprises (CGTMSE), which offers guarantee cover to banks and other lenders for collateral-free lending to micro and small enterprises (MSEs) in case of default by latter, has seen a 26 per cent drop in the number of approved loans in FY21. According to the available data on CGTMSE from the MSME Ministry, 6.19 lakh loans involving Rs 31,349 crore worth credit guarantee were approved in the last financial year vis-à-vis 8.38 lakh loans involving Rs 45,215 crore in credit guarantee approved in FY20. Despite the decline, the number of loans approved in FY21 was the second-highest over the last seven years (FY15-FY21), the data showed.
FY15-21 loans approved under CGTMSE
Covid battered MSEs had reported temporary closure of operations and restricted business activity post lockdown in March 2020, as per industry estimates. Consequently, the need for working capital credit had also contracted even as demand across sectors had plummeted due to lockdown. However, as the economic activity resumed during the second half of the year, small businesses across sectors had lined up seeking emergency credit support. The government had announced the Rs 3 lakh crore collateral-free emergency credit line guarantee scheme to enable MSMEs post-pandemic among other credit-linked schemes.
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Importantly, the number of loans settled during FY21 stood at 26,427 involving Rs 565 crore — lowest since FY16. This was 33 per cent down from 39,937 loans involving Rs 880 crore settled in FY20. According to the Reserve Bank of India’s April bulletin, the bank credit deployed to MSEs in February 2021 was highest during the 11-month period of FY21 at Rs 11.31 lakh crore. This was up 6.9 per cent from Rs 10.58 lakh crore deployed in February 2020.
CGTMSE offers guarantee cover to lenders in the ratio of 50/75/80/85 per cent of the credit given. The extent of guarantee cover is 85 per cent for micro enterprises for credit up to Rs 5 lakh and 50 per cent for credit from Rs 10 lakh to Rs 1 crore per MSE borrower for retail trade activity, as per the scheme’s portal. Moreover, the extent of guarantee cover is 80 per cent for MSEs owned and/or operated by women and for all loans up to Rs 50 lakh in the North East Region (NER).