Recently, the Ministry of MSMEs held a meeting with the Finance Ministry and the senior management of all banks. Its agenda was to review the schemes that generated the maximum number of jobs with low capital. The two schemes that gained prominence in the meeting were PMEGP (Prime Minister’s

Employment Generation Program) and CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises). The meeting also came to emphasize that MSMEs need more support. The Government should restructure stressed loans at their initial phases in collaboration with the banks.

PMEGP scheme

PMEGP is a credit-linked subsidy scheme that the Government of India introduced in 2008. The program is a combination of two schemes; Prime Minister’s Rojgar Yojna and Rural Employment Generation Program. It aims to generate employment through individually owned micro enterprises in the non-farm industry and traditional artisans. It is the Ministry of MSMEs that administers the PMEGP loan scheme. KVIC (Khadi and Village Industries Commission) is in charge of the scheme at the national level. In States, State Khadi and Village Industries Commission Directorates, State Khadi and Village Industries Boards and District Industries Centers and banks handle the implementation of the program.

Eligibility requirements

Features

PMEGP scheme comes with the following features:

●      The loan is available only for new ventures that are planning to establish.

●      There exists no cap of income to avail this facility.

●      Individuals or institutions that are availing any other State or Central financial assistance are not eligible for PMEGP loan.

●      Any venture that is not included in its negative listing can avail this scheme.

●      The maximum per capita investment for the units availing this scheme should be a maximum of INR100000 in plain areas. The same is INR500000 in hilly regions.

●      The maximum cost of the project should be INR1000000 in the service sector. And it should be INR2500000 in the field of manufacturing.

PMEGP loan interest rate

The interest rate of loans for MSMEs in general is 11-15%. But those ventures eligible for the ISEC (Interest Subsidy Eligibility Certification) Scheme can avail the concessional rate of interest of 4%. This difference is made available under the KVIC grants. And it is available only for those units in the Khadi and Polyvastra.

Documents required

Applying for the loan

Follow the steps given below to apply for the PMEGP loan:

1. Visit the PMEGP KVIC official portal.
2. Click the “online application form for individuals” or “online application for non-individuals.”
3. Fill in the application form. Click “save applicant data.” The portal will save the information.
4. Upload all the required documents and submit them along with the application.
5. You will receive an acknowledgement notification in your registered phone number.

If you are a non-individual applicant, you need to select your category upon landing on the portal. Check the negative listing to ensure that your business does not belong to it. If it does, you are not eligible for the scheme.

CGTMSE

CGTMSE (Credit Guarantee Funds Trust for Micro and Small Enterprises) is a trust Government of India established under the Ministry of Micro, Small and Medium Enterprises and the Small Industries Development Bank of India. The mechanism came to being in 2008. And it provides credit guarantee to banks that offer loans to MSMEs thereby eliminating the need of an external collateral. Here, the trust backs a large portion of the loan its member lenders offer. Both new and existing micro and small enterprises are eligible for the facility. The scheme has a credit cap of INR 2,00,00,000.

Rate of interest

The rate of interest banks offer under this scheme is generally low. It will vary depending on your business profile, requirements and the cost of your project. The credit guarantee is available up to 75% of the cost of the project.

Eligibility for the CGTMSE Scheme

Now let us have a look at the eligibility criteria of applicants for CGTMSE loan scheme for credit providers and credit borrowers. CGTMSE has made an agreement with lending institutions like Lendingkart that give funding support to specific sectors. Given below is the list of the institutions and entities which, according to CGTMSE norms, are eligible to avail loans:

Lending Borrowers

●      SMEs or All New and Existing Small as well as Medium Enterprises

Lending Institutions

●      SFB or Small Finance Banks

●      RRB or Regional Rural Banks

●      SCBs or Scheduled Commercial Banks

●      SIDBI or Small Industrial Development Bank of India

●      NBFCs or Non-banking Financial Companies

●      NEDFC or North Eastern Development Finance Corporation Ltd.

●      NSIC or National Small Industries Corporation

Small and Micro enterprises that are either operated or owned by females are eligible for a guarantee cover of up to 80% whereas in the North-East Region (NER) all the credit and/or loans for credit facilities are eligible for a guarantee of up to Rs. 50 lakhs. But Self Help Groups (SHG), agriculture, training institutions and Educational Institutions are not eligible for guarantee cover under CGTMSE. Moreover the loan limit of CGTMSE loans depends on the profile and business requirements of the specific applicant.

Features

One of the main goals of CGTMSE coverage is its focus towards creating a robust credit relief system. This system aims at promoting better credit flow to the MSME and the SME sector. Some of the features of the CGTMSE scheme that stand out are:

●      In some cases, guaranteed repayment of 75% or 85% sum for the defaulted principal loan amount that is up to Rs.50 lakhs.

●      The maximum guarantee limit for a loan amount that is greater Rs.50 lakh but lesser than Rs.1 crore is 50%.

●      In case of Micro-enterprises it provides for 85% repayment for loans if the loan amount is equal to or less than Rs.5 lakhs.

●      In case of an MSME unit being located in the North East Region (NER) or being promoted by a woman the guarantee amount for repayment is 80% of the total loan amount.

●      As regards the recovery or repayment procedure of CGTMSE loan, recovery covers the full loan amount that includes the interest for a period of 3 months or/and the total outstanding loan amount coupled with the accrued interest from the day of the suit filed date or the date when the loan becomes an NPA (whichever is lower).

●      Rehabilitating of business units if the failure of the business is beyond the control of the management that may be to an extent of Rs.1 crore. This money is given to support the lender in the resurrection of the enterprise.

Loan under CGTMSE Scheme documents required

Below listed are the necessary documents that are mandatory for Loan under CGTMSE scheme and its coverage:

●      Passport-sized photographs along with CGTMSE loan application form

●      Company Registration Certificate / Business Incorporated letter

●      Self-drafted Business Plan

●      Business Project Report

●      Copy of loan approval letter from the related bank

●      CGTMSE Loan Coverage Letter

●      Any other related document asked by the bank

If, due to unavoidable circumstances that are beyond the control of management, a business unit incurs losses, then CGTMSE also gives rehabilitation assistance to the respective business unit. In such a case where the business unit is in a bad condition CGTMSE may cover the loan for rehabilitation extended by the lender but it should be within the credit cap of Rs. 1 Crore.

The process to get a loan under CGTMSE

The main objective of the CGTMSE is to make sure that the banks look at small and micro businesses with a greater objectivity and also give more importance to the business model validation and project viability. If the borrower wishes to cover the loan under the credit guarantee fund scheme, then the borrower needs to pay a guarantee fee and service charge also to the interest charged by the bank. For the rest of India current CGTMSE fee is payable at the rate of 1.5% whereas it is payable at 0.75% for the North Eastern region including the Sikkim state.

The process to be followed for applying for a loan under CGTMSE is listed below:

Step 1. A Business Entity should be formed.

The initial step of the procedure for loan approval under the CGTMSE is the incorporation of a one person company or a limited liability partnership or private limited company or a proprietorship by the borrower that must be according to the nature of the business. He should also secure mandatory approvals and tax registrations for execution of the project.

Step 2. Business Plan

It is a vital step for a borrower to conduct a market survey and then analyze and thereafter make a business plan that contains all the relevant information, like promoter’s profile, business model, projected financials, etc. The report prepared such is then presented before the credit facility which is followed by filing of an application for getting the loan approved under CGTMSE scheme. However, businesses should remember that such project reports should be prepared only by experienced professionals. This increases their chances of getting loan approval.

Step 3. Sanction for Bank Loan

Usually the request for a bank loan consists of working capital and credit term facilities. After the application and business plan are submitted to the respective authorities, banks carefully analyse the feasibility of the business model and also go through the loan application and then accord sanction, as per the bank’s policy.

Step 4. Obtaining the Guarantee Cover

After the sanction of the loan, the bank thereafter applies to CGTMSE authority and thereby obtains the guarantee cover. If the borrower is successful in securing a loan from CGTMSE, then he has to pay the service charges along with the guarantee fee. The application form for CGTMSE can be downloaded from its official website.

 Frequently Asked Questions (FAQs)

1. State the full form of CGTMSE.

Credit Guarantee Fund Trust for Micro and Small Enterprises is the full form of CGTMSE. It offers funds to the financial institutions for aiding the SMEs and also the MSMEs for giving loan or credit services and products.

2. How much is the fee of CGTMSE?

The fee of CGTMSE given below:

●      The applicant needs to a pay a fee for a credit facility up to a maximum of Rs. 5 lakh, the fee is around 0.50% of the total guarantee amount

●      The applicant needs to a pay a fee for a credit facility above 5 lakhs to 1 crore, 0.50% of the guaranteed amount

3. State lock-in period for the CGTMSE.

18 months is the lock-in period for CGTMSE.

4. What is the limit on loan amount for the CGTMSE scheme which is guaranteed?

The limit on the loan amount for the CGTMSE scheme that is guaranteed is either 75% of the cost of project or maximum up to Rs 5 crore.

5. Does CGTMSE scheme cover Mudra Loan?

No, CGTMSE scheme does not cover Mudra Loan.

6. Can I approach MLIs or Member Lending Institutions?

Yes, one can approach any MLI for the CGTMSE guarantee for getting a loan under MSME category.

7. State the full form PMEGP.

The Prime Minister’s Employment Generation Programme is the full form of PMEGP.

8. State the project cost (maximum) allowed under the PMEGP scheme?

Under the PMEGP, the loan limit for the project is up to a maximum of Rs. 25 lakh for any kind of manufacturing unit and for service units it is Rs 10 lakhs.

9. Is collateral required for a loan under PMEGP?

Under this scheme no collateral is necessary for all applications which requires upto a maximum of Rs 10 lakhs. For projects between Rs 5 lakhs and Rs 25 lakhs, the CGTMSE offers a collateral guarantee under the PMEGP scheme.

10. State the minimum age limit for applying for the PMEGP scheme.

18 years of age is the minimum age criteria for applying for any PMEGP scheme.

11. State the amount of margin money and government subsidy available.

The government subsidy is the same as margin money which ranges between 15% to 35% of the maximum cost of the project.

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