The Hindu : Business : Collateral-free credit scheme benefits micro enterprises

Online edition of India's National Newspaper
Friday, Dec 07, 2007
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Collateral-free credit scheme benefits micro enterprises

R. Ramabhadran Pillai

Trust extends guarantee for loans up to Rs. 50 lakhs

Loan amount of Rs. 196 crore guaranteed
for 13,670 proposals
Zero per cent risk weight for lending
Institutions
Member lending institutions include
public sector banks

KOCHI: Kerala has a share of 8.61 per cent of the all-India coverage under the collateral free credit scheme for entrepreneurs in the micro and small enterprises (MSEs) sector. A loan amount of Rs.196.28 crores has been guaranteed for 13,670 proposals under the scheme.

The scheme was introduced by Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), established by the Government of India and Small Industries Development Bank of India.

CGTMSE extends guarantee for loans up to Rs.50 lakhs sanctioned by its member lending institutions to MSEs, both in the manufacturing and service sectors excluding retail trade.

MSEs’ problems

Chief Executive Officer of CGTMSE O.S. Vinod said entrepreneurs in the micro and small enterprises had been facing problems in getting finance for projects due to inability to provide collateral security or third party guarantee.

The CGTMSE scheme is intended to ameliorate the problem as also to facilitate increased credit flow to MSEs in the country.

Under the scheme, loans up to Rs.50 lakh are guaranteed by the Trust. Guarantee cover is available for 75 per cent of the loan amount. For loans to micro enterprises up to Rs.5 lakh and for loans for micro and small enterprises owned by women and units located in North East region, the coverage is 80 per cent of the loan amount.

The lender should extend credit without any collateral or third party guarantee. Loans guaranteed under the scheme carry zero per cent risk weight for the member lending institutions.

Member banks

Mr. Vinod said CGTMSE was taking steps to strengthen its partnership with banks and other member lending institutions.

The member lending institutions include public sector banks such as Canara Bank, Central Bank of India, Corporation Bank, Syndicate Bank, Indian Bank, Indian Overseas Bank, Oriental Bank of Commerce, Punjab National Bank, Union Bank of India and Vijaya Bank. SBI and its associate banks, private sector banks such as ICICI Bank Limited, HDFC Bank Limited, Federal Bank Limited, South Indian Bank Limited, IndusInd Bank Limited and Kotak Mahindra Bank Limited, a few of the regional rural banks, National Small Industries Corporation Limited and Small Industries Development Bank of India are among the lending institutions.

Job generation

As on November 30, 2007, the Trust had approved guarantees amounting to Rs. 2,279.60 crores, with estimated employment generation of over 4.3 lakh people. About 86 per cent of these guarantees were to small borrowers with average loan size of below Rs.5 lakhs.

The present corpus of the Fund stood at Rs.1584 crores as against the target corpus of Rs.2,500 crores.

The operations of the Trust are conducted online, resulting in transparency, according to him.

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