Credit Guarantee for MSME- Part 2

In continuation of part-1 of the article on Credit Guarantee scheme for SME, we will see other points in detail:

Coverage Criteria:

Recent Amendment made through Circular 220/2022-23 which takes effect from 01.4.2023,

The Ceiling for coverage under CGS to MSEs has been revised from 200L to 500L per borrower. This amendment shall be applicable for all guarantees approved on or after 01.4.2023 including enhancements of existing covered accounts.

S No	Category of borrower  (including those in  trading activity)	Maximum Credit facility under the scheme per borrower	Maximum Guarantee Coverage Cover (in ₹)
1	Micro Enterprises	500 Lakhs	Upto 5 Lakhs	85% of the amount in default
			Above 5L-upto 50 L	75% of the amount in default
			Above 50L-upto 500 L	75% of the amount in default
2	MSE located in North east region incl sikkim -UT of J&K -UT of Ladakh	500 Lakhs	upto 50 L	80% of the amount in default
			Above 50L-upto 500 L	75% of the amount in default
3	MSE promoted by  -Women Entrepreneurs/ -Person with disability -Agniveers -Scheduled -MSEs located  in     Aspirational district -ZED certified MSE	500 Lakhs	85% of the amount in default
4	All other category	500 Lakhs	75% of the amount in default

Guarantee charges (Amendment-Revision wef 01.04.2023)

The trust provides credit guarantees to the eligible money lending institutions at a nominal guarantee fee.

In line with the revamping done to the credit guarantee scheme to increase credit flow to MSEs,  there was also revision in Guarantee fee rates applicable for guarantees wrt all activity (including trading) approved on or after 01.4.2023 including enhancements of existing covered accounts.

They are : 

Credit facility (in ₹)	Fee -Standard Rate(SR)% P.A
Upto 10 L	0.37
Above 10L-upto 50L	0.55
Above 50L- upto 1Cr	0.60
Above 1Cr- upto 2Cr	1.20
Above 2Cr- upto 5Cr	1.35

1. The guarantee fee is charged as per the above mentioned slabs on the guaranteed amount for the 1st year and on outstanding basis for subsequent years. It is charged till completion of loan tenure or claim settlement, whichever is earlier. 

2. Guarantee fee is payable by MLIs to the fund, even on claim lodged cases until the settlement of first claim.

3. It is discretion of the  MLIs to determine whether to pass on the incidence of guarantee fee to the borrower or to bear it themselves. 

Concession / Upcharge in guarantee fee for the following categories:

Details	Concessional rate Applicability	Concessional rate p.a
MLI with better portfolio	Yes	Discount of 10% in SR
MLI with high risk associated	No	No Discount. Instead Additional Fee. Maximum risk premium upto 70% of SR
Women/Person with Disability/ Agniveers/ scheduled	Yes	Additional concession: Discount of 10% in SR
MSE located in North east region incl sikkim -UT of J&K -UT of Ladakh (upto ₹  50L)	Yes	Additional concession: Discount of 10% in SR
-ZED certified MSE	Yes	Additional concession: Discount of 10% in SR
Above 2Cr-Upto 5 Cr		1.35% p.a will be charged on guaranteed amount for 1st year and on the outstanding amount for remaining tenure of credit facility.

Guarantee cover: 

Guarantee provided by the CGTMSE, commences from the date on which the guarantee fee proceeds are credited to the bank account of the trust.

In case of term loan/composite credit: guarantee by the trust shall be for the period of  agreed tenure of the credit.

In cases where Working capital facility alone is provided to the mse borrowers,: then the guarantee cover is for  5 years 

and in case of renewals, for a block of 5 years. 

These guarantees continue to be valid for the said period provided the MLIs pay the annual service fee within the due date or time extended, as specified by the trust.

Claim settlement: 

In case of default by the MSE borrower,

The lender shall prefer a claim (lodge) with the trust, wrt defaulted account and also initiate recovery proceedings under due process of law. 

However invoking of guarantee is possible, after lock in period of 18 months, either from the date of last disbursement or from the date of guarantee coming into force, whichever is later.

The trust after ensuring the MLI has complied with procedural aspects of lodging complaint, shall honour 75% of the default and balance 25% on conclusion of recovery proceedings.

For MSEs to lodge claims with the trust, for settlement of guarantees given, wrt  loan outstanding & in default upto ₹10 Lakhs:  initiation of legal proceedings is no longer required (amendment w.e.f 01.04.2023) 

Even after the trust settles the claim (issues 1st installment) to the MLI,  the MLI continues to  be responsible for recovery of the amount in default from the borrower,  and on recovery, MLI should remit the amount net of legal expense to the trust.