1. Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
Presentation on
Credit Guarantee Scheme

2. Micro, Small & Medium Enterprises New Nomenclature & Classification
Service
(Ceiling on investment
in Equipment)
Manufacturing
(Ceiling on investment
in Plant & Machinery)
Rs.25 lakh
Micro
Rs. 10 lakh
Small
Rs.2 crore
Rs.5 crore
Medium
Rs.5 crore
Rs.10 crore

3. Micro & Small Enterprises - Importance
Provide employment to more than 40 Million persons
Largest employment generating sector after agriculture
Employment potential at low capital cost
Constitute 95% of industrial units
Total of 13 Million registered / unregistered MSEs
Key contributors to national economy
45% of manufacturing output
40% of total exports
9% of Gross Domestic Product
Facilitating Collateral-free Credit to Micro & Small Enterprises

4. Facilitating Collateral-free Credit to Micro & Small Enterprises
Guarantee Framework - Need
Policy makers world over
Strive for equitable wealth distribution
Desire to direct credit flow to specific sectors
Seek to evolve mechanisms to achieve developmental objectives
Aspire for financial inclusion / overall economic development
Govern Banks for social empowerment
Facilitating Collateral-free Credit to Micro & Small Enterprises

5. Guarantee Framework - Need
Banks exposed to various risks while lending
Default Risk factor - deterrent in MSE lending
Collateral - conventional risk mitigation tool
Lack of Collateral – commonly stated obstacle
Micro & Small Enterprises adversely affected
Need for alternate risk mitigation mechanism
Facilitating Collateral-free Credit to Micro & Small Enterprises

6. Credit Guarantee – Global scenario
Advocated as effective credit supplementation tool
Largely promoted / sponsored by Government
Dates back to 1936 in Japan
Gained acceptance in Europe – 1950’s
Well evolved in most developed economies
Multiple agencies operate in some countries
Facilitating Collateral-free Credit to Micro & Small Enterprises

7. Credit Guarantee in India
Export Credit Guarantee Corporation of India Ltd – established in – to cover risk of exporting on credit
Credit Guarantee Scheme for Small Scale Industries introduced in July, 1960 with Reserve Bank of India (RBI) as Administrator. RBI operated the scheme up to March, 1981
Credit Guarantee Corporation of India Ltd – established in 1971 – to guarantee loans under priority sector
Merged with Deposit Insurance Corporation in 1978 to form Deposit Insurance and Credit Guarantee Corporation (DICGC)
Credit guarantee schemes of the Corporation discontinued as the credit institutions gradually opted out of the scheme
Facilitating Collateral-free Credit to Micro & Small Enterprises

8. CGTMSE - Establishment
Set up as a Trust in August, 2000 and administered by a Board of Trustees
Government of India and Small Industries Development Bank of India (SIDBI) – the settlors – Contribution ratio 4 :1
Initial Corpus – Rs.125 crore ; Present Corpus – Rs.1907 crore ; Committed Corpus – Rs.2500 crore
Facilitating Collateral-free Credit to Micro & Small Enterprises

9. Facilitating Collateral-free Credit to Micro & Small Enterprises
CGTMSE - Objectives
Shift from collateral to merit based lending
Act as catalyst of entrepreneurship promotion
Facilitate institutional credit flow to MSE sector
Address growth constraints of MSE sector
Enable financial inclusion / employment generation
Revive confidence in credit guarantee mechanism
Facilitating Collateral-free Credit to Micro & Small Enterprises

10. Credit Guarantee Scheme (CGS)
Operated through Banks / Lending Institutions registered as Member Lending Institutions (MLIs)
Scheduled Commercial Banks / select Regional Rural Banks (RRBs) / other lending institutions as approved by Ministry of MSME eligible to register as MLIs
97 Banks / RRBs / other lending institutions registered as MLIs with CGTMSE
Operations done through web-based B2B E-Business software
Facilitating Collateral-free Credit to Micro & Small Enterprises

11. Facilitating Collateral-free Credit to Micro & Small Enterprises
CGS - Definitions
Collateral Security – Security provided in addition to the primary security, in connection with the credit facility extended to the borrower
Primary Security – Assets created out of the credit facility extended and / or existing unencumbered assets which are directly associated with the project or business for which the credit facility has been extended
Facilitating Collateral-free Credit to Micro & Small Enterprises

12. CGS – Cardinal Principles
Lender should extend credit without obtaining any Collateral Security / Third Party Guarantee
Interest Rate levied should be in accordance with Government / Reserve Bank of India guidelines / not more than 3% of lending Bank’s PLR
Facilitating Collateral-free Credit to Micro & Small Enterprises

13. CGS – Eligible Credit facilities
Credit facility upto Rs.100 lakh sanctioned to MSEs (both manufacturing and service sector including small road and water transport operators, small business, professionals, self-employed persons and all other service enterprises under the ambit of MSEs as per RBI guidelines on “Lending to Priority Sector” but excluding retail trade)
Both Fund & Non-fund based Credit facilities viz., term loan, working capital, composite credit, LCs, Guarantees, etc. can be covered. Credit proposals above Rs.50 lakh will have to be rated internally and should be of investment grade
Credit Facility of above Rs.100 lakh can also be covered, but Guarantee Cover will be limited to Rs lakh. No collateral security / third party guarantee shall be obtained by the MLI for credit facility above Rs.100 lakh
The loans should have been extended without any collateral including third party guarantee. The borrower should preferably avail of credit facility from single eligible institution. Interest rate shall not exceed 3 per cent over and above the Prime Lending Rate of the lender, excluding the annual service fee.
Facilitating Collateral-free Credit to Micro & Small Enterprises 13

14. CGS – Special inclusions
Certain activities under Agri-Clinics and Agri-Business Centres (ACABCs) like Tissue Culture, Feed Processing & Testing Units, Honey & Bee product processing units, Seed Processing Units, Setting up of Information Kiosks / Cool Chain, etc. made eligible for guarantee cover under the scheme
Borrower may be sanctioned distinct / separate credit facilities, but only credit facility not backed by collateral security / third party guarantee can be covered under the Scheme
Facilitating Collateral-free Credit to Micro & Small Enterprises

15. CGS – Extent of Guarantee
Credit facilities extended by more than one bank and / or financial institution jointly and / or separately to eligible borrower upto a maximum of Rs.100 lakh per borrower subject to ceiling amount of individual MLI or such amount as may be specified by the Trust, in the order in which the application for guarantee cover has been lodged
Facilitating Collateral-free Credit to Micro & Small Enterprises

16. CGS – Extent of Guarantee
Borrower Category
Maximum Guarantee Cover,
where credit facility is
Upto
Rs.5 lakh
Above Rs.5 lakh upto Rs.50 lakh
Above Rs.50 lakh upto Rs.100 lakh
Micro Enterprises
85% of Amount in Default / Rs.4.25 lakh
75% of Amount in Default
/ Rs lakh
Rs lakh plus 50% of amount in default above Rs.50 lakh / Rs lakh
Women Entrepreneurs / Units located in North East Region (incl. Sikkim)
80% of Amount in Default
/ Rs.40 lakh
Rs.40 lakh plus 50% of amount in default above Rs.50 lakh / Rs.65 lakh
All other category of borrowers
75% of Amount in Default / Rs lakh
Facilitating Collateral-free Credit to Micro & Small Enterprises

17. CGS – Tenure of Guarantee
Tenure of Guarantee Cover for Term Credit, Combined Working Capital & Term Credit and Composite Credit is tenure of Term Credit / Composite Credit or loan termination date, whichever is earlier
Where Working Capital facility alone is covered, the tenure is for a block of five years or loan termination date, whichever is earlier. Thereafter, MLI should apply for renewal of Guarantee Cover
If tenure of Term Loan is 3 years, tenure of working capital will also be 3 years. After 3 years, if guarantee cover is to be continued for working capital, application for renewal to be lodged online
Facilitating Collateral-free Credit to Micro & Small Enterprises

18. Facilitating Collateral-free Credit to Micro & Small Enterprises
CGS – Cost of Guarantee
Credit Facility
Upfront Guarantee Fee
Annual Service Fee
North East Region
(incl. Sikkim)
Others
Upto Rs.5 lakh
0.75%
1.00%
0.50%
Above Rs.5 lakh to Rs.50 lakh
1.50%
Above Rs.50 lakh to Rs.100 lakh
MLIs at their discretion may pass on the cost of Guarantee Cover to the borrowers. However, responsibility of payment of Guarantee / Service Fee to the Trust will be on MLIs
Facilitating Collateral-free Credit to Micro & Small Enterprises

19. CGS - Yearwise Performance
(as at October 31, 2009)
Period
MLIs availing
guarantee cover
Guarantees approved
Amount
(Rs. Crore)
FY2001 9
951
6.06
FY2002 16
2296
29.52
FY2003 22
4955
58.67
FY2004 29
6603
117.60
FY2005 32
8451
267.46
FY2006 36
16284
461.91
FY2007 40
27457
704.53
FY2008 47
30285
FY2009 57
53708
FY2010 (Nov 30,2009) 69
78266
Total (May not tally due to modification/ cancellation)
227457
Facilitating Collateral-free Credit to Micro & Small Enterprises

20. CGS – Slabwise Coverage
(as at November 15, 2009)
Slab
Number
Amount
(Rs. Crore)
% age
No.
Upto Rs. 5 lakh
184069 83 27
Above Rs.5 lakh
37866 17 73
TOTAL
221935
Facilitating Collateral-free Credit to Micro & Small Enterprises
Facilitating Collateral-free Credit to Micro & Small Enterprises

21. CGS – Overall Impact
(As on November 15, 2009)
Cumulative Guarantees approved
No. of MSE units / facilities
Loan Amount (extended by MLIs)
2,21,935
Rs crore
Turnover of guaranteed units
Rs crore
Exports by guaranteed units
Rs crore
Employment generation (No. of persons)
28.73 lakh
No. of MLIs registered 97
Facilitating Collateral-free Credit to Micro & Small Enterprises

22. Facilitating Collateral-free Credit to Micro & Small Enterprises
CGS – Top 10 MLIs – FY2010
(Based on approvals for FY2010 as at November 15, 2009)
SNo
MLI
No.
Amount (Rs. Crore) 1
Punjab National Bank
12687
503.59 2
State Bank of India
12596
474.10 3
Bank of India
10358
671.35 4
Canara Bank
4297
171.70 5
Allahabad Bank
4143
113.23 6
State Bank of Bikaner & Jaipur
3123
32.50 7
Syndicate Bank
2251
109.8 8
Bank of Baroda
2170
158.06 9
Indian Overseas Bank
1857
58.47 10
Union Bank of India
1846
100.75
Facilitating Collateral-free Credit to Micro & Small Enterprises

23. Facilitating Collateral-free Credit to Micro & Small Enterprises
CGS – Benefits
Credit facilities guaranteed under the Scheme carry Zero per cent Risk Weight / Provisioning for guaranteed portion (RBI Circular DBOD No.BP.BC.128/ /00-01 dated June 07, 2001)
Reduction in waiting period for recovery through legal process, realising the time value of money with hassle free & quick recovery of major portion of defaulted amount
Quicker dispensation of credit due to time saved on security creation / Title related issues of collaterals
In case of collateral, it is Bank’s responsibility to insure / secure the property when asset is taken over
Overall significant saving in Time & Energy cost of Bank’s Human Resources
Facilitating Collateral-free Credit to Micro & Small Enterprises

24. Facilitating Collateral-free Credit to Micro & Small Enterprises
CGS - Benefits
Credit Guarantee Scheme - A tool for
Widening of credit portfolio
Better management of risk
Faster recovery of dues
Enhancement of profitability
Facilitating Collateral-free Credit to Micro & Small Enterprises

25. Role of Credit Guarantee
A weak project cannot be turned into a viable one with guarantee cover and is only an additional comfort to the lender, as is collateral security
Banks should evaluate credit applications by using prudent banking judgement / due diligence / business discretion in supporting only viable projects under the Credit Guarantee Scheme and conduct the account(s) of the borrowers with normal banking prudence
Facilitating Collateral-free Credit to Micro & Small Enterprises

26. Facilitating Collateral-free Credit to Micro & Small Enterprises
The last couple of years of years have seen a sharp increase in the number of guarantees being approved which is a growing sign of acceptance of the scheme amongst banks and other MLIs. During FY2009, an all time high of 53,708 guarantees amounting to Rs 2199 crore were approved. In the current financial year, so far guarantees approvals for Rs 3589 crore have been extended. Cumulatively, guarantees amounting to Rs crore have been approved under the scheme as on November 30, 3009.
Facilitating Collateral-free Credit to Micro & Small Enterprises

27. We welcome suggestions, advice and
other inputs to improve our services Contact us at : Credit Guarantee Fund Trust for Micro and Small Enterprises 7th Floor, SME Development Centre Plot No.C-11, ‘G’ Block Bandra Kurla Complex Mumbai Phone : , (24 lines)
Fax : Website :
Facilitating Collateral-free Credit to Micro & Small Enterprises

28. Facilitating Collateral-free Credit to Micro & Small Enterprises
THANK YOU
Facilitating Collateral-free Credit to Micro & Small Enterprises