Khata Book Udhar Bahi Khata, Credit Ledger Account
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.
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.
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.
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:
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.
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:
Not all entities are allowed to utilise the benefits of CGTMSE. Therefore, few exceptions in the policy are made to the following entities:
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:
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:
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.
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.
Khata Book Udhar Bahi Khata, Credit Ledger Account
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