Credit and finance for MSMEs: Prime minister Narendra Modi on Thursday expressed happiness on the collateral-free loan scheme for small businesses Credit Guarantee Scheme for Micro & Small Enterprises (CGTMSE) reaching the milestone of approving Rs 1 lakh crore guarantees during the financial year 2022-23. “We are betting on the entrepreneurial zeal of our youth to propel our economy to even greater heights,” PM Modi tweeted in response to the MSME ministry’s announcement on the milestone.
“On March 25th, 2023 CGTMSE touched the milestone figure of approving guarantees worth Rs 1 lakh crore during 2022-23 FY,” the ministry had tweeted on March 27. In comparison to FY23, Rs 56,172 crore guarantees were approved in FY22 while in FY21 and FY20, Rs 36,899 crore and Rs 45,851 crore guarantees were approved respectively, according to the data shared in a written reply to a question in the Rajya Sabha last week by the minister of state in the MSME ministry Bhanu Pratap Singh Verma.
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In terms of the number of guarantees, 10.44 lakh guarantees were approved till February-end in FY23, growing from 7.17 lakh guarantees in FY22, 8.35 lakh guarantees in FY21 and 8.46 lakh guarantees in FY20.
CGTMSE, which provides credit guarantee to banks for extending loans to MSEs without seeking any collateral, 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.
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The guarantee extended begins 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, according to the scheme’s details.
To boost the scheme’s coverage, finance minister Nirmala Sitharaman in her budget speech this year had announced an infusion of Rs 9,000 crore in the CGTMSE corpus, effective April 1, 2023. This will “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 minister had said.
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