Credit and finance for MSMEs: The government’s Credit Guarantee Scheme (CGS), which facilitates collateral-free credit flow to micro and small enterprises under Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), has approved 8.43 lakh loan guarantees involving Rs 71,843 crore during the nine-month period (April-December) of the current fiscal, surpassing the entire FY22 and FY21 figures, official data showed.
According to the data shared by the Parliament by the minister of state for MSMEs Bhanu Pratap Singh Verma on February 2, 8.35 lakh guarantees amounting to Rs 36,899 crore were approved in FY21 followed by 7.17 lakh guarantees involving Rs 56,171 crore approved in FY22.
Also read: CGTMSE: Budget 2023 puts Rs 9,000 crore in credit guarantee scheme for MSMEs
CGTMSE was introduced back in July 2000 with an initial outlay of Rs 2,500 crore from the government and Small Industries Development Bank of India (SIDBI). This was enhanced to Rs 7,500 crore with an additional Rs 5,000 crore contributed by the government of India later.
Importantly, finance minister Nirmala Sitharaman in her budget speech for FY24 had announced Rs 9,000 crore infusion in the CGTMSE corpus, effective April 1, 2023, to enable additional collateral-free credit of Rs 2 lakh crore to MSMEs while the cost of credit will be reduced by 1 per cent.
The announcement came days after the State Bank of India (SBI) in a research report on the MSME sector suggested changes in CGTMSE citing “complexities” in enabling higher credit flow to small borrowers. According to the report authored by SBI’s Group Chief Economic Adviser Soumya Kanti Ghosh, the top recommendation was the reduction or phase-out of the annual guarantee or service fee to 0.50 per cent of the loan amount across all slabs and making CGTMSE coverage mandatory for all SME loans up to Rs 2 crore.
Also read: CGTMSE’s complexities need simplification, overhaul to boost MSME credit: SBI’s Soumya Kanti Ghosh
With respect to guarantee fee, CGTMSE through a circular on November 30, 2022, had reduced it by 10 per cent. Hence, for loans up to Rs 10 lakh, the fee was reduced from 0.75 per cent across all activity including trading to 0.68 per cent. Likewise, for Rs 10 lakh to Rs 50 lakh loans, the fee was dropped from 1.10 per cent standard rate to 0.99 per cent while for loans ranging from Rs 50 lakh to Rs 2 crore, the fee dropped from 1.20 per cent to 1.08 per cent.
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