Credit and finance for MSMEs: The government’s credit guarantee scheme for micro and small enterprises (MSEs) under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) has brought retail and wholesale trade by MSEs at par with other segments or activities eligible for credit guarantee cover under the scheme. With this, the credit limit for MSEs into retail and wholesale trade with guarantee cover has been increased from Rs 1 crore to Rs 2 crore, according to a circular issued by CGTMSE to all member lending institutions (MLIs). Moreover, the extent of guarantee coverage and the rate of annual guarantee fee (AGF) have also been brought at par with other activities.
“The modifications shall be applicable to all guarantees approved on or after December 1, 2022. However, the revised extent of guarantee coverage shall not be applicable in case of enhancement of existing working capital accounts already covered under the guarantee scheme and shall remain 50 per cent,” the circular issued on November 30, 2022, noted.
“Over the period of time, we saw the behaviour of loan portfolio of retail and wholesale trade almost at par with other loans. Moreover, since retail loans have been growing rapidly as compared to the traditional loans, we thought it is high time to bring them at par with other loans,” Sandeep Varma, Chief Executive Officer, CGTMSE told FE Aspire.
Importantly, the guarantee coverage for borrowers including micro enterprises, micro enterprises based in the northeast and other categories of borrowers under CGTMSE is 75 per cent for up to Rs 2 crore loans. However, for new categories of borrowers viz., women and SC-ST entrepreneurs, ZED-certified MSEs and those based in aspirational districts, the cover limit is 85 per cent.
In terms of AGF, CGTMSE had last week announced reducing the fee by 10 per cent for MLIs with healthy loan portfolio in order to encourage them to enhance credit flow to MSEs. For loans up to Rs 10 lakh, the fee has been reduced from the standard rate of 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 AGF has been 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 AGF stands at 1.08 per cent from earlier 1.20 per cent.