Credit Guarantee Fund Trust For Micro and Small Enterprises

Credit Guarantee Fund Trust for
Micro and Small Enterprises

(CGTMSE)
Presentation on
Credit Guarantee Scheme
At
Bank of Baroda, Lucknow
November 27, 2009
By
Mukesh Kumar, AGM
Micro, Small & Medium Enterprises
New Nomenclature & Classification
Enterprises
Manufacturing Service
(Ceiling on investment (Ceiling on investment
in Plant & Machinery) in Equipment)
Rs.25 lakh Micro Rs. 10 lakh
Rs.5 crore Small Rs.2 crore
Rs.10 crore Medium Rs.5 crore

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

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

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

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

Credit Guarantee in India
 Export Credit Guarantee Corporation of India Ltd – established in
1957 – 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

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

CGTMSE - Objectives
 Shift from collateral to merit based lending
 Act as mechanism 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

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

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

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

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.62.50 lakh. No
collateral security / third party guarantee shall be obtained
by the MLI for credit facility above Rs.100 lakh

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
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

Maximum Guarantee Cover,
where credit facility is
Borrower Category
Upto Above Rs.5 lakh Above Rs.50 lakh
Rs.5 lakh upto Rs.50 lakh upto Rs.100 lakh
85% of 75% of Amount in Rs.37.50 lakh plus 50%
Amount in Default of amount in default
Micro Enterprises
Default / above Rs.50 lakh /
Rs.4.25 lakh / Rs.37.50 lakh Rs.62.50 lakh
Women Entrepreneurs / 80% of Amount in Default Rs.40 lakh plus 50% of
Units located in North amount in default above
East Region (incl. Sikkim) / Rs.40 lakh Rs.50 lakh / Rs.65 lakh
Rs.37.50 lakh plus 50%
All other category of 75% of Amount in Default / of amount in default
borrowers Rs.37.50 lakh above Rs.50 lakh /
Rs.62.50 lakh

(Rs. / Lakh)
Guaranteed
Effective
Quantum Max. Guarantee amount @ 50% Total
Guarantee
of Credit amount @ 75% on incremental Guaranteed
Coverage
Facility upto Rs.50 lakh credit facility Amount
(%)
above Rs.50 lakh
50 37.50 0.00 37.50 75.00
60 37.50 5.00 42.50 70.83
70 37.50 10.00 47.50 67.85
80 37.50 15.00 52.50 65.62
90 37.50 20.00 57.50 63.88
100 37.50 25.00 62.50 62.50

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

CGS – Application Lodgement
 For credit facility sanctioned in a particular quarter, application for

Guarantee Cover should be lodged by the end of the next quarter
 To illustrate, for credit sanctioned during Jul-Sep quarter, application
for Guarantee Cover can be lodged upto December 31 (last date of next
quarter). Thus maximum time of 6 months and minimum time of 3
months is available for lodging of application
 In case of Working Capital Credit, date of renewal / review /
enhancement can be taken as date of sanction
 In case of credit facility secured by collateral, application can be lodged
after release of collateral, subject to time limits specified for
application lodgement
 Account should not have become overdue / bad / doubtful of recovery /
adjusted for debts deemed bad or doubtful of recovery as on date of
application / payment of guarantee fee

CGS – Guarantee Fee
 On approval of Guarantee Cover, Demand Advice for Guarantee Fee
is generated by the system and is to be paid upfront for
commencement of Guarantee Cover
 In enhancement cases, Guarantee Fee is calculated on pro-rata
basis for residual tenure of guarantee
 In case of working capital, payment is to be made within one month
from Demand Advice date and in case of term credit, one month
from date of first disbursement / demand advice date, whichever is
later
 Present Guarantee Fee rate is 1% of credit facility sanctioned for
loans upto Rs.5 lakh and 1.5% of credit facility sanctioned for loans
above Rs.5 lakh
 For units located in NER (incl. Sikkim), the Guarantee Fee rate is
0.75% of credit facility sanctioned for loans upto Rs.50 lakh and
1.5% of credit facility sanctioned for loans above Rs.50 lakh

CGS – Annual Service Fee
 Annual Service Fee (ASF) is to be paid for all accounts for
which Guarantee Cover has been availed / is in force in a
financial year, at the beginning of the next financial year
i.e., ASF is collected in “arrears” and is calculated pro-rata
for the first and last years.
 To illustrate for guarantee cover availed during FY2009,
payment of ASF is to be made within 60 days from the end of
the financial year i.e., May 31, 2009
 If payment is not received within stipulated period,
Guarantee Cover lapses and account is liable to be closed.
Annual Service Fee is to be paid till disbursement of first
installment of claim
 Present Service Fee rate is 0.50% of credit facility
sanctioned for loans upto Rs.5 lakh and 0.75% of credit
facility sanctioned for loans above Rs.5 lakh

CGS – Cost of Guarantee
Upfront Guarantee Fee
Annual
Credit Facility North East Service
Region Others Fee
(incl. Sikkim)
Upto Rs.5 lakh 0.75% 1.00% 0.50%
Above Rs.5 lakh to Rs.50 lakh 0.75% 1.50% 0.75%
Above Rs.50 lakh to Rs.100 lakh 1.50% 1.50% 0.75%
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

CGS – Time limits
Lodgement of End of next quarter (For credit facility sanctioned
Application during the quarter, Jul-Sep, 2009, application for
(linked to Guarantee Cover can be lodged upto December 31,
Sanction Date) 2009)
Payment of 30 days from date of Demand / first disbursement,
Guarantee Fee whichever is later (Eg. if demand advice date is
(linked to June 10, 2009 and first disbursement is on June
Disbursement / 28, 2009, guarantee fee should be paid within 30
Demand Date) days from June 28, 2009)
Payment of May 31 of next Financial Year (For guarantee cover
Annual Service Fee availed during FY2009, ASF was to be paid by May
(linked to close of 31, 2009). Annual Service Fee is to be paid till
financial year) disbursement of first installment of claim

CGS – Lodging of claims
 Claim to be lodged by within a maximum period of one
year from date of NPA, if NPA is after lock-in period or
within one year of expiry of lock-in period, if NPA is
within lock-in period
 Pre-requisites for lodging claims are
 Guarantee Cover is in force
 Account classified as NPA
 Recall Notice issued
 Lock-in period expired
 Recovery proceedings initiated

 Guarantee Cover is in Force
 Guarantee Cover in respect of the facility was in force at
the time of account turning NPA and there are no
arrears in payment of ASF.
 Lock-in Period
 18 months from guarantee start date or last date of
disbursement, which ever is later
 Recovery proceedings initiated
 Suit for recovery of primary security should be filed
with Lok Adalat / RRA / Civil Court / DRT / SARFAESI Act

 If recovery proceedings are initiated
under SARFAESI Act, action as per Section
13(4) of the Act, has to be taken
 Back–ended Subsidy, if any, should be
indicated
 Declaration and Undertaking is to be
signed by an officer not below the rank of
Assistant General Manager
CGS – Claim Settlement
 Two stage claim settlement process
 First installment of 75% of guaranteed portion of
Amount in Default will be paid within 30 days of
receipt of complete information
 Interest at prevailing Bank Rate will be paid in case
of delay beyond 30 days
 Second installment shall be paid on conclusion of
recovery proceedings
 On conclusion of recovery proceedings, final loss is
shared by CGTMSE and MLI, in the ratio ranging
from 85 : 15 to 62.5 : 37.5, as the case may be

 Amount in Default - Outstanding in the
account, both principal & interest, as on date
of NPA or the date of lodgement of the claim
application, whichever is lower, subject to
maximum of amount guaranteed
 Recoveries made after NPA date / payment of
first installment of claim should be remitted to
CGTMSE after deducting legal expenses, if any
 MLI’s may use OTS / Compromise settlement
route for recovery. CGTMSE has to be
informed if such settlement is negotiated

Scenario-I
Amount in Default on NPA Date Rs.8 lakh
CGTMSE’s Liability (75%) Rs.6 lakh
First installment paid by CGTMSE (75% of liability) Rs.4.5 lakh
Recovery from Primary Security remitted to
Rs.1 lakh
CGTMSE, after adjusting legal expenses
Net Amount in Default (Final Loss) Rs.7 lakh
Second installment payable by CGTMSE
Rs.75,000
(Rs.5.25 lakh minus Rs.4.50 lakh)
Final payout to MLI (Recovery from Primary
Rs.1.75 lakh
Security remitted + 2 Installment)
nd

Scenario-II
Rs.2 lakh
NIL
(Rs.4.50 lakh minus Rs.4.50 lakh)
Rs.2 lakh
nd

Scenario-III
Rs.4 lakh
(-)Rs.1.5 lakh
(Rs.3 lakh minus Rs.4.50 lakh)
Rs.2.5 lakh
nd

Performance
Approvals Time Period

(Aug. 2000 to Sep.
1st 50,000 6 years 1 month
2006)
(Oct. 2006 to Jun.
2nd 50,000 1 year 7 months
2008)
(Jul. 2008 to Mar.
3rd 50,000 9 months
2009)
(Apr. 2009 to Sep.
4th 50,000 6 months
2009)
CGS - Yearwise Performance
(as on October 31, 2009)
MLIs availing Guarantees Amount

Period
guarantee cover approved (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 1055.84
FY2009 57 53708 2199.40
FY2010 70 65110 3066.80
Total 216100 7967.82

CGS – Top 10 MLIs - Cumulative
(As on October 31, 2009)
Amount
SNo MLI No.
(Rs. Crore)
1 State Bank of India 43171 1253.61
2 Canara Bank 33519 785.67
3 Punjab National Bank 29069 800.05
4 Bank of India 25325 1302.01
5 Allahabad Bank 7697 197.19
6 Union Bank of India 7278 262.13
7 State Bank of Bikaner & Jaipur 6284 65.10
8 Central Bank of India 4792 277.12
9 Syndicate Bank 4729 255.27
10 State Bank of Travancore 4689 103.62

CGS – Top 10 MLIs – FY2010
( As on October 31, 2009)
S.No MLI No. Amount (Rs. Crore)

1 State Bank of India 11793 435.95
2 Punjab National Bank 11693 470.60
3 Bank of India 9394 604.24
4 Canara Bank 4056 161.53
5 Allahabad Bank 3719 101.73
6 State Bank of Bikaner & Jaipur 2957 29.57
7 Syndicate Bank 2098 102.57
8 Bank of Baroda 2067 148.78
9 Indian Overseas Bank 1690 51.86
10 Union Bank of India 1660 93.14

BOB- CGS – Top 10 Regions – FY2010
(Based on Cumulative guarantee approval on November 15, 2009)
S.No MLI No. Amount (Rs. Lakhs)
1 Ajmer 476 663.80

2 Jaipur 473 1787.71
3 Udaipur 452 433.51
4 Ahmedabad 309 4880.31
5 Pune 247 1821.45
6 Kanpur 242 2387.23
7 Jodhpur 239 1480.61
8 Lucknow 215 1522.37
9 Mumbai Metro North 207 735.39
10 Kerla 181 1355.94
BOB- CGS – Top 10 Regions – FY2010
(Based on approvals for FY2010 as on November 15, 2009)
S.No MLI No. Amount (Rs. Lakhs)
1 Jaipur 267 1012.79

2 Ajmer 234 565.80
3 Udaipur 194 223.19
4 Mumbai Metro North 187 473.89
5 Ahmedabad 136 2142.34
6 Jodhpur 132 672.51
7 Mumbai Metro East 101 390.80
8 Varanasi 89 486.80
9 Pune 78 444.26
10 Allahabad 78 294.19
CGS – Benefits
 Credit facilities guaranteed under the Scheme carry Zero per cent
Risk Weight / Provisioning for guaranteed portion (RBI Circular
DBOD No.BP.BC.128/21.04.048/00-01 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

CGS - Benefits
Credit Guarantee Scheme - A tool for
 Widening of credit portfolio
 Better management of risk
 Faster recovery of dues
 Enhancement of profitability
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

Help us serve you better
 Please furnish the following details while
communicating with us
 Your Member ID
 Full address & telephone number
 Name and designation of officer
 CGPAN and Name of Unit
 Demand Advice Number, while making payments
 Keep record of your Member ID, User ID and

Password in a safe place

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-400051
Phone : 022-26541803-07, 61437800 (24 lines)
Fax : 022-26541821
Website : www.cgtmse.in

THANK
YOU
www.cgtmse.in

Credit Guarantee Fund Trust For Micro and Small Enterprises

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Credit Guarantee Fund Trust for

Micro and Small Enterprises

Rs.25 lakh Micro Rs. 10 lakh

Rs.5 crore Small Rs.2 crore

Rs.10 crore Medium Rs.5 crore

 Provide employment to more than 40 Million persons

Facilitating Collateral-free Credit to Micro & Small Enterprises

Policy makers world over

 Strive for equitable wealth distribution

Facilitating Collateral-free Credit to Micro & Small Enterprises

 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

 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

 Credit Guarantee Scheme for Small Scale Industries introduced in

 Credit Guarantee Corporation of India Ltd – established in 1971 –

 Merged with Deposit Insurance Corporation in 1978 to form

 Credit guarantee schemes of the Corporation discontinued as the

Facilitating Collateral-free Credit to Micro & Small Enterprises

 Set up as a Trust in August, 2000 and

 Government of India and Small Industries

 Initial Corpus – Rs.125 crore ; Present

Facilitating Collateral-free Credit to Micro & Small Enterprises

 Shift from collateral to merit based lending

 Act as mechanism 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

 Operated through Banks / Lending Institutions

Facilitating Collateral-free Credit to Micro & Small Enterprises

 Collateral Security – Security provided in

Facilitating Collateral-free Credit to Micro & Small Enterprises

 Lender should extend credit without

 Interest Rate levied should be in

Facilitating Collateral-free Credit to Micro & Small Enterprises

 Credit facility upto Rs.100 lakh sanctioned to MSEs (both

Facilitating Collateral-free Credit to Micro & Small Enterprises

 Certain activities under Agri-Clinics and Agri-

Credit facilities extended by more than one

Facilitating Collateral-free Credit to Micro & Small Enterprises

Facilitating Collateral-free Credit to Micro & Small Enterprises

100 37.50 25.00 62.50 62.50

Facilitating Collateral-free Credit to Micro & Small Enterprises

Facilitating Collateral-free Credit to Micro & Small Enterprises

 For credit facility sanctioned in a particular quarter, application for

Facilitating Collateral-free Credit to Micro & Small Enterprises

Facilitating Collateral-free Credit to Micro & Small Enterprises

Facilitating Collateral-free Credit to Micro & Small Enterprises

Above Rs.5 lakh to Rs.50 lakh 0.75% 1.50% 0.75%

Above Rs.50 lakh to Rs.100 lakh 1.50% 1.50% 0.75%