CREDIT GUARANTEE TO SMEs

CREDIT GUARANTEE TO SMEs

TOPIC: Economy

Context- The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) has included non-scheduled urban co-operative banks (NSUCBs), state co-operative banks, and district central co-operative banks as member lending institutions (MLIs) under a scheme that provides guarantee for the collateral-free loans given to micro and small enterprises (MSEs).

Concept-

• This is beneficial for NSUCBs, which face a higher priority sector lending (PSL) target.
  • The Reserve Bank of India (RBI) had revised the PSL target for all urban co-operative banks from 40 percent to 75 percent by march 2024.

Credit Guarantee Fund Scheme (CGS) for Micro and Small Enterprises

• It was launched in 2000 by the Government of India (GoI) to make available collateral-free credit to the micro and small enterprise sector.
• The credit guarantee scheme (CGS) assures a lender that if an MSE unit that has availed itself of collateral-free credit facilities (fund-based and/or non- fund based) fails to discharge its liabilities, then the trust would make good the loss, to the tune of 50- 85 percent of the credit facility.
• Both the existing and the new enterprises are eligible to be covered under the scheme.
• The corpus of CGTMSE is being contributed by the GoI and SIDBI in the ratio of 4:1 respectively.
• The Ministry of MSMEs, GoI and Small Industries Development Bank of India (SIDBI) established a trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement the CGS.