SSI units particularly the first generation
of entrepreneurs faced difficulties in accessing bank
credit because of their inability to provide adequate
collateral security for loans. Considering this, the
Government launched the Credit Guarantee Fund Scheme
for Small Industries on 30th August, 2000 with a view
to alleviating the problem of collateral security and
impediment to flow of credit to Small Scale Industries
(SSI) sector.
Background:
The Government approved Credit Guarantee
Fund Scheme for Small Industries on 19th May, 2000 with
the objective of making available credit to SSI units,
particularly tiny units, for loans up to Rs. 10 lakhs
without collateral/third party guarantees. The Scheme
is being operated by the Credit Guarantee Trust Fund
for Small Industries (CGTSI) set-up by Government of
India and SIDBI. The Trust was incorporated on 27.7.2000.
The Scheme has been operationalised with effect from
1st January, 2001. Subsequently, the Government decided
to increase the eligibility limit of loans to be guaranteed
from Rs. 10 lakhs to Rs. 25 lakhs. Necessary modifications
have been carried out in the indenture of the Trust
to enable CGTSI to guarantee loans up to Rs. 25 lakhs
and to provide for counter guarantees to other institutions.
Salient Features
of the Scheme:
1. Eligibility and Coverage
Any collateral free credit facility
(both in terms of loan as well as working capital) extended
by lending institutions on or after 1st June, 2000 to
new as well as existing manufacturing SSI units, including
Information Technology and Software Industry, particularly
in the tiny sector, with a credit cap of Rs. 25 lakhs
per operating unit, can be extended guarantee cover.
With effect from September 1, 2003, the credit facilities
up to Rs. 25 lakhs sanctioned without collateral security
and/or third party guarantee by the lending institutions
to the new and existing Small Scale Service and Business
(Industry Related) Enterprises ( SSSBEs) have also been
made eligible for coverage under the scheme. Any credit
facility which has been sanctioned by the lending institution
against collateral security and/ or third party guarantee,
however, is not eligible for guarantee cover under the
scheme. The guarantee cover available is up to 75% of
the loans extended by the lending institutions. The
Guarantee cap per borrower is Rs. 18.75 lakh. The rate
of interest that can be charged to the borrower by the
lending institution shall not be more than 3% over the
prime lending rate of the lending institution.
2. Guarantee and Annual Service
Fee
The lending institutions availing
guarantee from the Trust have to pay one time guarantee
fee of 2.5% of the credit facility sanctioned and the
service charges of 1% per annum on the outstanding loan
amount as on 31st March each year.
3. Commencement of guarantee cover
The guarantee cover will commence
from the date of payment of guarantee fee and shall
run through the agreed tenure of the term credit in
respect of term credit/composite credit. Where working
capital alone is extended to the eligible borrower,
the guarantee cover shall be for a period of 5 years
or a block of 5 years, or for such period as may be
specified by the Trust in this behalf.
4. Invocation of guarantee
The lending institution may invoke
the guarantee in respect of eligible credit facility
if the following conditions are satisfied:
a. The guarantee in respect
of that credit facility is in force;
b. The lock-in period of 24 months from either the
date of last disbursement of the loan to the borrower
or the date of payment of the guarantee fee in respect
of credit facility to the borrower, whichever is later,
has elapsed;
c. The amount due and payable to the lending institution
in respect of the credit facility has not been paid
and the dues have been classified by the lending institution
as Non Performing Assets. Provided that the lending
institution shall not make or be entitled to make
any claim on the Trust in respect of the said credit
facility if the loss in respect of the said credit
facility has occurred owing to action/decisions taken
contrary to or in contravention of the guidelines
issued by the Trust;
d. The loan facility has been recalled and the recovery
proceedings have been initiated under due process
of law.
The trust shall pay 75 per cent
of the guaranteed amount on preferring of eligible
claim by the lending institution, within 30 days,
subject to the claim being otherwise found in order
and complete in all respects. The balance 25 per cent
of the guaranteed amount will be paid on conclusion
of recovery proceedings by the lending institution.
Eligible Institutions
All scheduled commercial banks and
Regional Rural Banks (categorized under “sustainable
viability”) or such of those institutions as may
be directed by GOI. As on 31tst March 2004, 45 eligible
institutions comprising 26 Public Sector Banks, 10 Private
Sector Banks, 6 Regional Rural Banks and 3 other institutions
viz. National Small Industries Corporation Ltd. (NSIC),
North Eastern Development Finance Corporation Ltd. (NEDFi)
and Small Industries Development Bank of India (SIDBI)
have become Member Lending Institutions (MLIs) of CGTSI
for participating under the Credit Guarantee Scheme.
Contribution to the Corpus Fund of
CGTSI
The Government of India and SIDBI
contribute towards the corpus fund of the CGTSI in the
ratio of 4: 1. The Trust was set-up with an initial
corpus of Rs.125 crore, which was enhanced to Rs. 250
crore by the end of FY 2001-02 and to Rs.427.02 crore
by the end of FY 2002-03. The corpus fund was further
raised to Rs. 686.19 crore during the FY 2003-04. With
a view to augment the corpus so as to make the scheme
self-sustaining, a budgetary provision of Rs.196.29
crore has been made by the Government during the current
FY 2004-05. At present, the corpus fund is of Rs.767.44
crore.
Progress of Credit Guarantee Scheme
As on 31st July, 2004, a total of
16,679 proposals have been approved by CGTSI and guarantee
cover provided for credit aggregating Rs.280.18 crore.
