written by Khatabook | July 13, 2021

A Beginner’s Guide to CGTMSE

 CGTMSE is a scheme that is meant to help those who don’t have an adequate financial backup. It plays a crucial role in helping both small and medium-sized businesses. In the long run, this scheme will help new businesses try their ideas without worrying about a credit guarantee fund trust. But, unfortunately, not many are aware of this scheme. 

What is CGTMSE?

If you reside in India, you might have come across a common scheme called the CGTMSE. However, many might not know its meaning because of the limited or unreliable information available. In this article, all information will be made clear regarding CGTMSE.

The CGTMSE full form expands to Credit Guarantee Fund Trust for Micro and Small Enterprises. Now that you know the full form of CGTMSE let’s learn more about its basics.

CGTMSE is an initiative managed and organized by the central government. The scheme is in collaboration with the Ministry of Micro, Small and Medium enterprises. Also, it involves the active participation of the Small Industries Development Bank of India.

  • The scheme was officially introduced in the year 2000. Today, the CGTMSE scheme has completed nearly two decades and is highly successful.
  •  As suggested by its name, the program makes sure that financial institutions have the required credit guarantee. With the credit guarantee, they can fund both small and medium-sized enterprises. 
  • CGTMSE scheme terms and conditions are to be followed before the trust can back up financial institutions.

Most of the time, people refrain from investing in businesses because of financial shortcomings. They don’t have the required backup to start and sustain businesses. Even when the size of the business is small and the financial need is minimalistic - companies fail.

  • The CGTMSE understands this situation and works towards resolving the problem by offering collateral-free mortgages or loans. 
  • Only an eligible financial body can offer such grants. 
  • The financial institution guarantees that the borrower will be able to repay the sanctioned amount. This guarantee means the organisation is focused on helping entrepreneurs from the first generation. 
  • In the long run, this would improve the business culture of the country. Also, first-time business people with promising ideas will be able to make it big. Moreover, these ideas will not be blocked by policies or the need for guarantees from third parties. 
  • When newbies don’t have a safety card, the CGTMSE loans give a reliable source of support and vision. 

Also Read: Best Small Business Ideas for Rural Areas, Villages, Small Towns in India

Interesting features of the CGTMSE loan process

As mentioned above, this scheme focuses on a robust strategy. It ensures that the credit or cash flow to the chosen business is as smooth as possible. Hence, it ensures that all the CGTMSE charges are fulfilled for accessing the new loan scheme. The following features describe how organised the CGTMSE scheme is:

  • Suppose the entrepreneur defaults on a loan, a maximum of 75 to 85% of the amount will be guaranteed. The amount can reach an upper limit of Rs 50 lakhs and nothing more.
  • The guaranteed amount drops to 50% when the borrowers quote a figure between Rs 50 lakhs to Rs 1 Crore.
  • Suppose the organisation is small and the investment begins at Rs 5 lakhs. In that case, the repayment guarantee is as high as 85%. 
  • If a woman promotes the business, the guaranteed repayment amount is as high as 80%.
  • Suppose the business is managed by someone from the North Eastern regions of the country. In that case, the guaranteed repayment is as high as 80%. 
  • The repayment of the scheme takes several factors into consideration such as interest of the loan or outstanding amount. The lowest of the two is selected for the new loan scheme. 
  • Business units that fail will certainly require rehabilitation. The lender is supported with an amount as high as Rs 1 crore. However, this support comes into effect only when the failure has gone beyond the control and aspirations of the business owners. 
  • Medium-sized businesses that engage in retail trade will be offered 50% of the guaranteed amount. Here, the upper limit is as high as Rs 50 lakhs. 

Key information for CGTMSE loan

Lenders need to be careful when they approve an application. A few terms and conditions have to be remembered when making a CGTMSE claim.

The credit guarantee of this loan is for those who need a third party or collateral support. The scheme allows NBFC to contribute as well. NBFC organisations that can contribute will be capped at an amount as high as Rs 2 crores. This amount is meant to cover a majority of the loan amount requested by the borrower. Providers and borrowers need to abide by a set of principles. 

Here are a few of these norms. 

  1. Scheduled commercial banks can take part in this scheme. 
  2. Regional rural banks can engage in the CGTMSE scheme. 
  3. SIDBI, SFB, NBFC, NSIC and NEDF banks can take part too. 

All the lending institutions have to establish an agreement with the CGTMSE. Or, they should set an agreement with the Trust for the Purpose. Once the agreement is signed, they will become active member lending institutions (MLI). At the moment, there are 131 active members in this body. 

On the other hand, both existing and new small, medium-sized enterprises can use the benefits of the new loan scheme. 

Here are few conditions that borrowers need to bear in mind:

  1. The credit facility should not cross Rs 50 lakhs when the guaranteed amount is as high as Rs 62.5 lakhs. In some cases, the guaranteed amount can be as high as 65 lakhs. 
  2. When the credit facility goes beyond Rs 50 lakhs, the maximum guaranteed amount is capped at Rs 1 Crore. 
  3. If the loan is declared as an NPA (Non-Performing Asset), the date of filing is used when claiming term credit on the loan amount. Here, the outstanding loan amount is taken into consideration. 

Not all entities are allowed to utilise the benefits of CGTMSE. Therefore, few exceptions in the policy are made to the following entities:

  1. Retail trade
  2. Agriculture 
  3. Educational bodies
  4. Training institutes 
  5. Self Help organisations 

Making an Application for CGTMSE loan

The CGTMSE scheme is helpful for many business owners. However, you need to apply and be granted the benefit. Now, this might make one ask how to apply for CGTMSE loan scheme:

  • Upon sanctioning, lenders must approach CGTMSE approved bodies before the end of the quarter. At the latest, they should approach the body before the end of the second quarter. 
  • The guarantee will become effective only when the CGTMSE fee is paid. Till then, the benefits and conditions of the new loan scheme remain void. The tenure of the policy will be agreed upon during the application. 
  • The coverage will be extended to both the Term and Composite Loans. On the other hand, if the borrower is offered a Working Capital Loan, the duration would be five years. 
  • Of course, the tenure can be redefined by CGTMSE. In these cases, the period of cover would be modified to the tenure quoted by CGTMSE. 

Documents required for the CGTMSE loan process

There are usually various complex steps required for undertaking a loan. However, it is simple to understand what CGTMSE loans expect from the borrower. 

Here is the list to help you:

  1. The company has to be registered with required documents such as proper certification, tax registrations or approvals. It should be a limited company, partnership company or proprietorship. 
  2. The projects need to be evaluated using a market analysis process for understanding the brand position. This report is mandatory and covers: promoter profile, business model and financials. 
  3. Once the necessary documents are in place, an application has to be submitted to CGTMSE. 
  4. The authorities will evaluate the application form and the documents. This process helps them understand your stake as a borrower. It allows them to validate if you are indeed a worthy candidate. 
  5. Then, following the lender’s policies, the sanction would be approved or be refused. 
  6. If the lender chooses to sanction the loan, they need to file a request at CGTMSE. Then, the application for guarantee cover is totally up to the lender and their promptness in filing for the needful. 

The CGTMSE Loan interest rate

Now, you might be curious to learn about the CGTMSE interest rates. Just like every other loan application, lenders tend to charge a fee from the borrowers. This charge amounts to the rate of interest. On average, the CGTMSE loan interest rate ranges between 14 to 18%. The CGTMSE interest rate includes the guarantee cover as well. 

Multiple changes have been made to the CGTMSE scheme terms and conditions. For example, the CGTMSE loan recovery fee was altered after the 1st of April. 2018. The fee was decided to be charged only on the guaranteed amount during the first year of the loan. Upon completion of the first year, the fee would be charged on the outstanding amount. This process would then continue to the subsequent years. 

Benefits of CGTMSE for businesses

Whether it is a small enterprise or a medium-sized company - organisations and their efforts contribute drastically to the overall GDP of India. A recent study revealed that the efforts of both SMEs and MSMEs contribute to 10% of the country’s GDP. This contribution gives banks and other authorities plenty of reasons to support small and medium-sized businesses. These companies employs more than 5 crore workers. 

Due to many reasons, banks and other financial institutions tend to impose strict rules on how the money would be assigned to borrowers. Unfortunately, these rules mean many ambitious borrowers don’t have the required financial aid to begin their venture. CGTMSE goes a long way to get rid of these hassles and tussles. Moreover, it gives lenders a reason to be liberal when funding such businesspeople. 

Also Read: Top 5 Government Loan Schemes for Small Business in India


On the whole, CGTMSE is here to lend you a hand of help. If you have a great idea and little money - this is one of the finest schemes to help you secure a loan from any recognized lender. In the long run, you will be able to build a solid and lasting business.


1. Are there any annual fees? 

The annual fee depends on when the loan scheme was taken. From 2020, the ASF for credit facilities up to a value of Rs 5 lakhs will pay 0.5% of the guaranteed amount. When the borrowed amount ranges between Rs 5 lakhs and Rs 1 crores, it will be 0.75%. 

2. Is there a unique settlement strategy? 

Once the lender releases the final tranche, there is a lock duration of 18 months. Upon completion of this period, a CGTMSE claim can be made. Most of the time, lenders wait until the defaulted account is tagged as NPA. Then, the recovery proceedings can be executed by filing a suit. CGTMSE defines all the rules and regulations in filing a suit. However, these policies vary from time to time. Hence, lenders need to look up to the most recent policies before filing. 

3. Can foreign or private sector banks engage in the new loan scheme?

Under RBI Act 1934, any bank in the commercial sector can be a part of CGTMSE.

4. Is the guaranteed amount reevaluated? 

Once the Member Lending Institutions or MLI shares the guaranteed amount, it may not be reevaluated. This restriction is because the CGTMSE strongly believes that all necessary measures were taken before the amount is shared. This principle is why the CGTMSE accepts any proposal that comes their way without a reevaluation. Indeed, this happens with the premise that only “viable” proposals are always sent to them. 

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