Credit Guarantee Fund for Micro
Units- Overview & Alterations by Management Committee
What is a credit guarantee fund?
Credit guarantee fund is a type
of fund which backs up the loan taken by the beneficiaries as a form of collateral.
This assures the lending agencies including banks, financial institutions to
readily supply loans.
Who is eligible for Cgtmse?
CGTMSE Scheme Eligibility
Criteria:
Under the scheme, the member
lending institution which can be an NBFC also, who lend to the SME and MSME
sector are eligible for a maximum credit cap of Rs. 2 crores, which in any case
is meant to cover a large proportion of the loan amount.
What is Cgfmu fee?
“Fund” means the Credit Guarantee
Fund for Micro Units (CGFMU) set up by Government of India with the purpose of
guaranteeing payment against default in micro loans extended to eligible
borrowers by Banks/NBFCs/MFIs/Other financial intermediaries, managed by the
Board of NCGTC as the trustee of the Fund.
How do I apply for Cgtmse scheme?
CGTMSE Scheme-Process of Loan
Application
Step 1 – Form the Business
Organization. Forgetting the fund for a new business, you have to form the
business organization first. ...
Step 2 – Prepare the Project
Report or Business Plan. ...
Step 3 – Apply for the sanction
of Bank Loan. ...
Step 4 – Get Coverage under
CGTMSE Scheme.
What is lock in period in Cgtmse?
Prior to lender (also referred to
as MLI) preferring any claim on the Trust, there shall be a lock-in-period of
18 months from either the date of last disbursement of loan to the borrower or
the date of the guarantee cover coming into force in respect of the particular
credit facility, whichever is later.
Further, MINISTRY OF FINANCE
(Department of Financial Services) NOTIFICATION New Delhi, dated 18th April 2016 S.O. 1443(E) appearing
in the Gazette of India: EXTRAORDINARY PART II—Section 3—Sub-section (ii)
publishing the Credit Guarantee Fund for Micro Units (CGFMU), the following
changes/alterations (given in italics & underlined) have been introduced by
the Management Committee of CGFMU vide its minutes of the meeting held
on March 31, 2020:
(i) Paragraph at Serial No. 2 x
in Chapter I shall read as
"Collateral security"
means the security provided in addition to primary security / personal
obligation of borrower/co-borrower. Primary security in respect of a credit facility shall
mean the assets created out of the credit facility so extended and/or existing unencumbered
assets which are directly associated with the project or business for which the
credit facility has been extended (personal assets to be excluded).
(ii) Paragraph at Serial No. 2
xiii in Chapter I shall read as “Guarantee Cover” means maximum cover available
per portfolio, based on the amount in default, in respect of the credit
facility extended by the lending institution. The first 3% of the amount
in default will be borne by the eligible lending institution. The amount in default
over and above 3% (if applicable) will be settled by the fund to the
extent of 75% on pro-rata basis, subject to the receipt of an Auditors‟
certificate confirming eligible claim amount.
(iii) Following paragraph at
Serial No. 2 xix in Chapter I shall be inserted
“Self
Help Groups (SHGs)”– As may be defined from time to
time and including, but not limited to, SHGs as defined by NABARD under two
schemes of GoI –
Deendayal Antodaya Yojana
National Rural Livelihood Mission or DAY-NRLM/SRLM and National Urban
Livelihood Mission or NULM.
(iv) Title at Serial No. 4
in Chapter II shall read as Micro loans and SHG loans eligible under the Scheme and the following
paragraph shall be added under it
Loans sanctioned to
Self Help Groups (SHGs) between Rs.10 lakh and Rs. 20 lakh during FY 2020-21
and thereafter would also be eligible for coverage under CGFMU, irrespective of
the availability of group guarantee of SHG members, from the date of this notification.
In respect of this category, first loss guarantee shall be Nil and second loss guarantee
shall be 75%. The Guarantee Fee for this group shall be 0.25% p.a. during first
year and 0.5% p.a. in subsequent years. The guarantee fee shall be charged on outstanding
balance at the time of sanction (on pro rata basis) and thereafter on annual basis
for renewals. Credit facility to SHGs being covered here should not be backed
by any collateral.
Explanation: For the
purposes of this Section, the loan sanctioned to an SHG for any amount between
Rs. 10 lakh and Rs. 20 lakh (say Rs. 11 lakh), the entire loan (irrespective of
the loan outstanding, even if it goes below Rs.10 lakh) would be eligible for
coverage under this guarantee.
(v) The following
paragraphs shall be inserted under Guarantee Fee at Serial No. 8i of Chapter
III
(c) Guarantee fee
for SHG -The Guarantee fee would be charged at 0.25% p.a. during first year
and 0.50% p.a.in subsequent years. The guarantee fee will be charged on outstanding
balance at the time of sanction (on pro rata basis) and thereafter on annual basis
for renewals.
d) Guarantee fee for
Micro units in Aspirational Districts - The Guarantee fee would be charged
against guarantee cover for micro loans located in the Aspirational Districts
at lower fees of 0.5% p.a. (on prorata basis for first year) for guarantees
availed on the portfolios of FY 2020-21 & FY 2021-22. This shall be
reviewed at the end of two years.
(vi) Paragraph at
Serial No. 9 i of Chapter IV under Extent of Guarantee shall read as :
iii. In the nature of
„First Loss Portfolio Guarantee‟, wherein first loss to the extent of 3% of
the amount in default, will be borne by the MLI and therefore, will be
excluded for the claim. Out of the balance portion, the „extent of guarantee‟
will be to a maximum extent of 75% of „Amount in Default‟ in the
portfolio or such other percentage as may be specified by the Fund from time to
time on a pro-rata basis.
Extent of Guarantee
Cover in respect of SHGs- First loss Portfolio Guarantee to be borne by MLIs
shall be Nil and extent of guarantee will be 75% of amount in default.
(vii) Serial No. 11.
ii. under Subrogation of rights and recoveries on account of claims paid of Chapter
V shall read as iv. Every amount recovered and due to be paid to the Fund shall
be paid without delay,
and if any amount due
to the Fund remains unpaid beyond a period of 30 days from the end of FY in
which it was recovered, interest shall be payable to the Fund by the lending
institution at 2% over and above the prevailing repo rate for the
period for which payment remains outstanding after the expiry of the said
period of 30 days.
(viii) The paragraph
under Appropriation of amount realized by the lending institution in respect of
a credit facility after the guarantee has been invoked at Serial No. 1 of
Chapter VII shall be replaced by
a) The Lending
institution shall report the recovery amount with the annual Update File and at
the time of lodgement of each Claim File.
b) The recoveries
made post final claim settlement, in excess of legal costs, shall be shared on
the same percentage on which final claim amount was settled i.e. Final Claim
amount paid / Final Amount in Default for each MLI for each guaranteed Portfolio.
c) Such recoveries
shall be passed on an Annual basis for three years beyond the life time of the
Portfolio, within 30 days of each financial year end i.e. by April 30th of Year 5 Year 6 and Year 7. At the
end of Year 7, the Portfolio shall be marked as finally closed.
Other contents of the
notification shall remain unchanged
DISCLAIMER: THE
ARTICLE IS BASED ON THE RELEVANT PROVISIONS AND AS PER THE INFORMATION EXISTING
AT THE TIME OF THE PREPARATION. IN NO EVENT I SHALL BE LIABLE FOR ANY DIRECT
AND INDIRECT RESULT FROM THIS ARTICLE. THIS IS ONLY A KNOWLEDGE SHARING
INITIATIVE.
THE AUTHOR – CS
DEEPAK SETH (ASSOCIATE
PARTNER AT HELPINGHANDS PROFESSIONALS LLP) AND CAN BE REACHED AT
CONTACTHHPRO@GMAIL.COM OR 9910248911.
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