CGTMSE Scheme Explained in detail [updated]

Last updated by BankersClub on July 9, 2019

CGTMSE Scheme known as “Credit Guarantee Fund for Micro and Small Enterprises” is a guarantee fund set by Government of India to guarantee the loans provided by banks to small enterprises and medium enterprises. The objective of the fund is to enable small and medium enterprises to avail loans from banks without any collateral security and guarantee. We have explained the CGTMSE scheme below:


Which loans or Borrowers under CGTMSE Scheme?

CGTMSE cover is available for Loans to Micro and Small Enterprises (MSE) engaged in manufacturing or service activities. Loans upto Rs.2 crore are covered except retail trade. Limit for advances to MSE Retail Trade is Rs.1 crore.

Earlier the definition of eligible borrower excluded Retail Trade, loans to educational institutions, training centres, self help groups (SHGs) and joint liability groups (JLGs. However, now, loans to MSE Retail trade segment upto Rs.100 lacs can be covered, while there is no exclusion of loans to educational institutions, training centres, self help groups (SHGs) and joint liability groups (JLGs) from the coverage.

Loans given under Mudra Scheme (including to above categories) may be covered under Credit Guarantee Fund for Micro Units (CGFMU) – Read this Article

Whether any collateral security or guarantee can be taken for loans to be covered under CGTMSE Scheme?

Loans under CGTMSE scheme is a collateral free loan. Collateral security or third party guarantee not to be taken in respect of credit facilities covered under CGTMSE Scheme.

However, a “Hybrid / Partial Collateral Security” product allowing guarantee cover on credit facilities having collateral security, for the portion of credit facility not covered by collateral security (unsecured portion), has also been introduced by CGTMSE. In the partial collateral security model, the Member Lending Institutions (MLIs) are allowed to obtain collateral security for a part of the credit facility, whereas the remaining part of the credit facility, can be covered under Credit Guarantee Scheme of CGTMSE.

“Collateral security” means the security provided in addition to the primary security, in connection with the credit facility extended by a lending institution to a 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 projector business for which the credit facility has been extended.

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Whether Third Party Guarantee can be obtained for CGTMSE covered accounts?

No Third Party Guarantee to be obtained except:

  • Sole-Proprietor in case of Sole Proprietary concern,
  • Partners in case of partnership / limited liability partnership
  • Trustees in case of Trust
  • Karta & Coparceners in case of HUF
  • Promoter directors in case of private/ public limited companies
  • Owner of the immovable property in case of guarantee under Hybrid / Partial collateral security model

What is Maximum Risk Cover under CGTMSE Scheme?

  • Micro Enterprise 

– Loan upto Rs.5 lacs – 85%

– Loan above Rs.5 lacs & upto Rs.200 lacs – 75%

  • Women entrepreneurs/ Units located in North East Region (incl. Sikkim) (other than credit facility upto ₹ 5 lakh to micro enterprises)

– For Loan upto Rs.50 lacs – 80%

– For Loan above Rs040 lacs & upto Rs.200 lacs – 75%

  • MSE Retail Trade – 50%
  • All other cases – 75%

(the %age guarantee cover above is on the amount in default)

What is the Tenure for coverage of working capital facilities under CGTMSE?

  • The tenure for coverage of working capital facilities is 5 years, where working capital alone is covered under the scheme. In case term credit and working capital both are covered under the scheme, the tenure relating to working capital facility would match the normal repayment period of term credit.
  • CGTMSE cover is required to renewed after 5 years on a payment of applicable guarantee fee.
  • Maximum period of is 10 years.

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Whether Second Term Loan can be covered under CGTMSE Scehme?

CGTMSE cover is available for the second term loan provided the aggregate credit does not exceed Rs.200 Lakh.

When to apply for CGTMSE cover? What is last date for applying for CGTMSE cover?

In respect of eligible Loan accounts sanctioned in a quarter, apply before close of the following quarter (for example in respect of loan sanctioned in April-June quarter, application should be submitted online before 31st September).


What to do when a CGTMSE covered turns NPA?

Inform the Trust i.e., mark the account NPA, indicate the date of classification of the account as NPA in a particular calendar quarter, by end of subsequent quarter (for example is account turned NPA on 31stAugust 2018, mark NPA by 31st December 2018).

When to Lodge claim with CGTMSE?

  • The lending institution may invoke the guarantee in respect of credit facility within a maximum period of 3 years from the NPA date or lock-in period whichever is later, if the NPA date is on or after 15/03/2018.
  • For NPAs prior to 15/03/2018, time period for claim lodgement will be 1 year for cases sanctioned prior to 01/01/2013 and 2 years for cases sanctioned after 01/01/2013

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Where to see CGTMSE claims settlement details?

Claims settled account details can be viewed in CGTMSE portal by using Member login Id and password.

What to do when a CGTMSE covered account is closed?

Bank to immediately inform the date of closure of guaranteed accounts to CGTMSE for generating Annual Service Fee (ASF)/ Annual Guarantee Fee (AGF) on pro-rata basis up to the date of closure of accounts to avoid generation of ASF/AGF for the full year.

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What if there is change in Management of borrower covered under CGTMSE?

If the new management meets eligibility criteria viz MSE status, activity etc., CGTMSE cover will continue otherwise the guarantee will be deemed to be terminated from the date of the transfer of management.

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What is the Guarantee fee under CGTMSE Scheme?

  • The Standard Rate of Guarantee Fee is as under:
  • 1% pa for loan upto Rs.5 lacs
  • 35% pa for loan above Rs.5 lacs & upto Rs.50 lacs to woman, micro enterprise and units in north east,
  • 50% pa for loan above Rs.5 lacs & upto Rs.50 lacs to others
  • 80% pa for loan above Rs.50 lacs & upto Rs.200 lacs except retail trade
  • 00% pa for loan to retail trade.
  • With effect from 1st April 2016, Risk Premium is to be added over Standard Rate on the basis of NPA portfolio of the bank under CGTMSE covered loans and Risk and claim payout ratio as per following matrix
S.No. Risk premium on NPAs in Guaranteed portfolio Risk premium on Claim Payout Ratio
NPA Percentage Risk Premium Claim Payout Percentage Risk Premium
1 0-5% SR 0-5% SR
2 >5-10% 10% of SR >5-10% 10% of SR
3 >10-15% 15% of SR >10-15% 15% of SR
4 >15-20% 20% of SR >15-20% 20% of SR
5 >20% 25% of SR >20% 25% of SR

In case of term loans, AGF would be calculated on outstanding amount as on 31st December against each guarantee account and for working capital, AGF would be calculated on maximum (peak) working capital limit availed by the borrower/enterprise during the previous calendar year.

For cases covered under Hybrid Security Model Guarantee fee will be charged on the guaranteed amount for the first year and on the proportionate outstanding amount subsequently resulting in lower guarantee fee charged to MSEs.

Additional risk premium of 15% will be charged on the applicable rate to MLIs who exceed the payout threshold limit of 2 times more than thrice in last 5 years. This premium will be applicable for all guarantee accounts irrespective of the sanction date.

If guarantee fee is paid and accepted by CGTMSE, will the account be covered, even if otherwise not eligible (for example a retail trade account)? 

Merely remitting of guarantee fee / Annual Service Fee to CGTMSE and acceptance of the same by CGTMSE does not entitle the loan to be covered under the guarantee scheme of CGTMSE.


sunil kumar sahu · February 18, 2017 at 8:16 am

A Very good article ,i love it but could be better if you provide case study.
so please provide case study.

Amit · April 21, 2017 at 1:21 pm

Sir, does increased cover of Rs.2 crore is applicable, as bankers are still denying loans above 1 crore under CGTMSE..kindly clarify with circular reference, would be useful

Rohit · June 21, 2017 at 1:03 am

in case of default, what actions are envisaged against the beneficiary borrower

Jai · August 22, 2018 at 9:10 am

If you talk to CGTMSE help desk, they may accept the application. They sometimes do consider the geniune delays.

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