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A brainchild of the Ministry of Micro, Small and Medium Enterprises, the CGTMSE Scheme is a unique offering which aims to bridge the gap between a business idea and its execution, offering financial support to entrepreneurs. Under the scheme, eligible members can get credit facilities from banks to finance medium and small enterprises. Loans up-to a maximum of Rs 1 crore can be availed, with the differentiating factor being the Credit Guarantee provided by the government.
This Credit Guarantee offers security to entrepreneurs in the event of their business failing. A maximum cover equivalent to 85% of the loan amount is available under the scheme. In cases where a borrower is unable to repay the loan, the scheme will cover the loss, paying lending institutions the financial loss incurred by them due to non-repayment of loan. The quantum of repayment depends on the amount borrowed, the borrower (male/female) and the purpose of loan.
MSEs are an important part of the Indian economy and contribute approx. 10% to the country’s GDP. They give employment to more than 7 crores people even though they face many hurdles in procuring finances and business loans. Despite their large presence across various market segments, lending institutions stay apprehensive about the high rate of NPAs in small and micro businesses. Even though it is a valid risk, the liability that these factors entail creates problems for both the businesses and the banks. For instance, SMEs do not find the loan approval procedure simple or business-friendly. Banks prefer not to lend unless they have checked and rechecked all documents and got a guarantee.
To counter such situations, CGTMSE has come forward to play a crucial role. It has shared the risk factor and has helped bring relief to both borrowers and lending institutions.
CGTMSE offers significant advantages for new and existing MSMEs. The major advantage of CGTMSE is that you can acquire cover for the credit facility even if you have minimum or no experience in setting up a business. Although the credit cover remains optional under this scheme, the MSME Ministry has given due importance to the scheme and monitored its progress on a regular basis.
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