Government may increase cover for MSMEs under credit guarantee scheme

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The government may sharply increase the amount of interest-free loans for micro, small and medium enterprises (MSMEs) under a key Central credit guarantee scheme.

Proposals from industry bodies to increase credit guarantees under the Centre’s Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) are under consideration as the government seeks ways to help small businesses that are struggling after the pandemic, officials told Moneycontrol.

As a result, the scheme will ensure that each registered MSME gets access to larger interest-free loans, the limit of which currently stands at Rs 2 crore.

The CGTMSE facilitates easy access to credit from the organised banking sector to first-generation MSME entrepreneurs. It provides guarantees to registered member lending institutions against loans/credit facilities of up to Rs 2 crore extended by them without taking any collateral security and/or third-party guarantee.

Officials said the MSME ministry is looking at expanding the loan coverage amount.

“The idea has always been to slowly expand the amount, in tune with increased demand and rising inflation. We are seriously looking into it,” a senior ministry official said. He said an announcement on this may be made in the budget.

The Federation of Indian Chambers of Commerce & Industry had said as part of its budget suggestions that CGTMSE should back loans worth Rs 5 crore.

Another official said the government hopes to raise the total coverage under CGTMSE beyond Rs 50,000 crore in the current financial year.

“Our credit guarantee coverage had hovered around Rs 19,000 crore (annually) for three years till 2017-18. It crossed Rs 30,000 crore in 2018-19. There was a 58 percent increase in credit guarantee support and a 65 percent rise in the number of beneficiaries,” he said.

In 2019-20, the coverage had risen to Rs 45,215 crore, an all-time high, just before the pandemic began. While it fell to Rs 31,349 crore in 2020-21, the total amount had again risen to Rs 38,251 crore in the first 10 months of 2021-22, the official added.

The government is also set to tweak operational guidelines under the scheme. Currently, the cover ranges between 50 percent and 85 percent of the sanctioned amount of the credit facility.

The extent of the guarantee is 85 percent for micro-enterprises for credit up to Rs 5 lakh. The extent of the guarantee is 50 percent of the sanctioned amount from Rs 10 lakh to Rs 100 lakh per MSE borrower for retail trade activity.

The number of beneficiaries was an estimated 600,000 at the end of 2019-20 before the pandemic hit. Since 2014-15, Uttar Pradesh with 475,000 claims, has topped the list of states with the most claims. This was followed by Tamil Nadu and Madhya Pradesh with 400,000 claims each, Andhra Pradesh (325,000) and West Bengal (240,000).