Credit and finance for MSMEs: The government’s collateral-free loan scheme for micro and small enterprises (MSEs) Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) has grown nearly twice in the credit guarantee amount approved in the current fiscal from the pre-Covid level. The scheme, which provides credit guarantee to banks for extending loans to MSEs without seeking any collaterals approved 10.44 lakh guarantees amounting to Rs 91,427 crore till February, according to the data shared in a written reply to a question in the Rajya Sabha on Monday by the minister of state in the MSME ministry Bhanu Pratap Singh Verma.
In comparison, 8.46 lakh guarantees involving Rs 45,851 crore were approved in FY20, indicating growth in credit raised by MSEs to continue funding their post-pandemic business recovery and scale. This was also visible with Rs 56,172 crore guarantee amount approved in FY22, up by 52 per cent from Rs 36,899 guarantee amount approved in FY21 which had declined amid Covid from FY20.
“The growth can be viewed in two ways: first, the credit need going up and second, conscious efforts undertaken on a couple of fronts. These include need-based changes made in the scheme, making the platform more technologically robust for bankers to be more comfortable lending digitally and knowledge dissemination done about the scheme among MSEs,” Sandeep Varma, CEO, CGTMSE told FE Aspire.
In terms of the settlement, 90,186 claims involving Rs 1,579 crore were settled till February in the current financial year vis-a-vis 45,198 claims involving Rs 1,001 crore settled before Covid in FY20 and 67,548 claims involving Rs 1,329 crore settled in FY22.
The maximum guarantee claims settled for banks till February-end in FY23 were in loans extended to MSEs in Uttar Pradesh with 11,808 claims settled involving Rs 190 crore followed by Madhya Pradesh (9,114 claims involving Rs 109.55 crore), Maharashtra (8,655 claims involving Rs 177.31 crore), Tamil Nadu (8,012 claims involving Rs 132.64 crore), Karnataka (7,393 claims involving Rs 141.95 crore), and more.
For the uninitiated, the guarantee for loans extended for banks by CGTMSE commences from the date of payment of their guarantee fee and runs through the agreed tenure of the term credit in the case of term loans or composite loans. In the case of working capital credit, the tenure is five years. The bank can raise a claim for the loan after it is defaulted by the MSE borrower.
“Loans which are guaranteed right now may come for claims if defaulted over a period of time. So, claims settled today must be the loans approved around 2014 or 2015 or later after they become NPAs,” added Varma.
CGTMSE was revised in December last year with a number of changes. For example, MSEs seeking guarantee cover under the scheme for collateral-free credit were mandated to provide their Udyam registration number (URN) from the next year onwards. Also, microfinance institutions (MFIs) were added to the list of member lending institutions (MLIs). In addition, the annual guarantee fee (AGF) was reduced for MLIs by 10 per cent in order to encourage them to enhance credit flow to MSEs.
Importantly, the finance minister Nirmala Sitharaman in her budget 2023 speech had announced an infusion of Rs 9,000 crore in the CGTMSE corpus to enable additional collateral-free credit of Rs 2 lakh crore to MSMEs and to reduce the cost of credit by 1 per cent.