Surprisingly, most of the bank managers are also not aware of the scheme. Even if they do, they are not providing required information to the customers.
Small and Medium enterprises play a very significant role in the growth of the economy. They generate employment, promote inter-sectoral linkages, increase exports, develop entrepreneurial skills and encourage technological innovation. According to data released by the government, there are an estimated 26 million micro and small enterprises (MSEs) in the country providing employment to an estimated 60 million persons. The SME sector contributes about 45 per cent of the manufacturing sector output and 40 per cent of the nation's exports. The government of India is supporting MSMEs in a big way.
MSMEs face a large number of problems, chief among them being the “non- availability of timely and adequate credit at reasonable rates of interest”. Banks are wary of lending to MSMEs for fear of the loans going bad and the consequent troubles for the loan sanctioning official. To safeguard their and the bank interests, they insist that the borrower provide them with adequate collateral security. Unfortunately, the borrowers are unable to do so and hence are deprived of loan facility from the banks.
To tide over this problem, in the year 2000 itself, the Government of India introduced the Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGMSE) to make available collateral-free credit to the micro and small enterprise sector. Both the existing and the new enterprises are eligible to be covered under the scheme.
Collateral Free Loan
The Ministry of Micro, Small and Medium Enterprises 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 Credit Guarantee Fund Scheme for Micro and Small Enterprises. The scheme was formally launched on August 30, 2000 and is operational with effect from 1st January 2000. Subsequent to the enactment of MSMED Act-2006 the trust was renamed as Credit Guarantee Fund Trust for Micro and Small Enterprises and scheme as Credit Guarantee Scheme for Micro and Small Enterprises (CGTMSE).
A micro, small and medium enterprise is defined as one having original investment in (plant and machinery) of Rs 25 lakh, Rs 5 crore and Rs 10 crore in manufacturing; and in equipment of Rs 10 lakh, Rs 2 crore and Rs 5 crore respectively in service sector.
Under the scheme, credit facilities, both term loans and working capital, up to Rs 100 lakh per borrowing unit, can be extended to a new or existing micro and small enterprise without any collateral security or third party guarantee.
Credit facility, under the scheme, means any financial assistance by way of term loan and/ or fund based and non-fund based working capital (e.g. Bank Guarantee, Letter of Credit, etc extended by the financial institution to the eligible borrower.)
The institutions, which are eligible under the scheme, are scheduled commercial banks, (Public/Private/Foreign) and select RRB’s. National Small Industries Corporation (NSIC) and North Eastern Development Finance Corporation Ltd (NEDFi) and SIDBI are also permitted to finance under the scheme. Data given by the government reveals that as on March 31, 2010, there were 112 eligible lending Institutions registered as (MLIs) of the Trust, comprising of 27 Public Sector Banks, 16 Private Sector Banks, 61 Regional Rural Banks, 2 Foreign Bank and 6 other Institutions viz., NSIC, NEDFI, SIDBI and The Tamil Nadu Industrial Investment Corporation (TNIIC).
The guarantee cover available under the scheme is to the extent of 75 per cent of the sanctioned amount of the credit facility. The extent of guarantee cover is 80 per cent for (a) micro enterprises for loans up to Rs 5 lakh; (b) MSEs operated and/or owned by women; and (c) all loans in the North-East Region.
The fee payable to the trust under the scheme is one-time guarantee fee of 1.5 per cent and annual service fee of 0.75 per cent on the credit facilities sanctioned. For loans up to Rs 5 lakh, the one-time guarantee fee and annual service fee is 1 per cent and 0.5 per cent respectively. Further, for loans in the North-East Region, the one-time guarantee fee is only 0.75 per cent.
Shortcomings
There are a few shortcomings in the scheme such as:
A majority of the budding entrepreneurs have no knowledge that such a scheme exists.
Surprisingly, most of the bank managers are also not aware of the scheme. Even if they do, they are not providing required information to the customers regarding the scheme. It takes a long time for the loans to be sanctioned. The banks these days have targets under the MSME sector and are very aggressive in lending. Perhaps some extra delegated powers could hasten up the process of loan sanction. Trade is not covered under CGTMSE scheme. Loan for only manufacturing and services is available.
The scheme provides for collateral free loan of only up to Rs 100 lakh. Perhaps the government could think of increasing this limit. Presently, micro, small and medium enterprises have capital investment (plant and machinery) ceiling of Rs 25 lakh, Rs 5 crore and Rs 10 crore in manufacturing; and Rs 10 lakh, Rs 2 crore and Rs 5 crore respectively in service sector. This needs to be revisited as the limits were fixed around 8 years ago. On the part of the government, they need to visit educational institutes, especially B-schools and conduct seminars to popularise this scheme.
The author of this article is Prof. Ravinder Bhatia, Asia-Pacific Institute of Management, New Delhi
Source: Inputs from www.cgtsi.org.in
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