Banks reluctant to lend to MSMEs under CGTMSE scheme

Banks are reluctant to lend under the Credit Guarantee Trust for MSMEs (CGTMSE) scheme, said an industry expert requesting anonymity.

Under CGTMSE, collateral free loans up to Rs 2 crore are given by banks and NBFCs to MSMEs. Launched in 2000, this scheme is aimed at encouraging investment in MSMEs.

However, recovery becomes difficult due to lack of collateral. The government provides reimbursement in case of bad loans and full cover is not available in most categories. Usually, the cover ranges from 65-75 percent of the loan, thus the balance turning into losses for banks.

While the government provides guarantee, it is assessed whether there was any lapse and attempts to identify accountability. If lapses are identified, the government does not reimburse banks. Thus, banks have become reluctant to lend under the CGTMSE scheme.

The expert also added that banks are not forthcoming in lending to app-based businesses. Thus, technology related MSMEs find it difficult to raise money under this scheme.

Further, the NBFC crisis has affected financing, making it difficult for MSMEs in bill discounting and vendor financing.

Since the aim of the CGTMSE scheme is to encourage MSMEs, it should not be profit oriented, said the expert. The assessment should be on the basis of guarantees invoked and honoured.