A helping hand for MSMEs: CGTMSE | SupportBiz

Finance Forum

A helping hand for MSMEs: CGTMSE

Credit guarantee is an area most of the micro and small-sized businesses (MSMEs) struggle with. UR Tata, CEO of Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), in an interaction with SupportBiz, shared some insights into the trust's working and trends in SME finance.

Edited excerpts:

What is the major focus of  the Credit Guarantee Fund Trust for Micro and Small Enterprises? The importance of MSMEs is well recognized in India,but there are several challenges that this sector is facing. Credit guarantee is one such challenge.  The government has made significant efforts to help MSMEs in this direction.  The Ministry of MSME introduced Credit Guarantee Scheme (CGS) so as to strengthen the credit delivery system and facilitate the flow of credit to the MSME sector. In order to successfully implement this scheme, the Ministry of MSME and SIDBI came together and set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

We, at CGTMSE, ensure successful implementation of the Credit Guarantee Scheme (CGS), which provides guarantees to member lending institutions (MLIs) for credit facilities upto Rs.100 lakh to MSEs who are not able to provide  collateral security or third-party guarantee   to bankers.

What areas should policy makers focus on to reduce the  gap between  entrepreneurs and banking organizations?

Yes, there is a gap that exists between bankers and entrepreneurs.

Both the parties need  to understand each other’s expectations. Banks have legitimate apprehensions about lending money to micro-sized units. We must understand that they are dealing with  public money. In many cases, entrepreneurs do not understand the significance of the documentation  which is expected by the bankers, and they fail to convince the  bank  to lend  them money.  In other  cases,  entrepreneurs prepare  viable   business  plans,  but find it difficult to produce financial collateral or a bank guarantee. We help such entrepreneurs who fail to provide guarantee or collateral to the bank, but possess a viable business idea.

One point I want to make  very clear is that we do not influence the bank in the process of decision-making about lending  to  an entrepreneur. We come into the picture only when there are collateral documents  missing from the entrepreneur’s side.

With the active support of the Government of India, RBI, SIDBI, Member Lending Institutions and other stakeholders, CGTMSE is committed to facilitate collateral-free credit to the MSE sector across the country, and work diligently towards achievement of the goals of financial inclusion.

What is the impact you have created so far?

Our Trust was incepted in 2000.  Our market impact has really picked up  in the past few years, and the operations under CGS are growing significantly. Cumulatively, as of March 31, 2012, a total of 7,92,229 accounts have been accorded guarantee approval for Rs. 37,139.31 crore. We have 133 banks in our network as MLIs. In addition to this, we have 70 rural banks.  As of now, we have around 10 lakh  units who have availed our services.

What are your plans to take this initiative to the next level?

We are  considering how to increase the outreach of this scheme. We are also trying to develop customised products.