What CGTMSE is
The Credit Guarantee Funds Trust for Micro and Small Enterprises (CGTMSE) is a trust established by the Government of India under the Ministry of Micro, Small and Medium Enterprises and the Small Industries Development Bank of India (SIDBI).
Launched in 2000, the scheme offers credit guarantees to financial institutions on credit facilities extended to MSEs. The ceiling, originally ₹2 crore, has now been raised to ₹5 crore, with guarantee cover running from 75% to 85%.
Where we come in. CGTMSE is a guarantee to the bank, not a loan to you — so it only helps if your banker applies for the cover. Many branches simply do not raise it. We make sure it is applied for, and priced correctly.
Scheme highlights
- Interest Rates
- As per RBI guidelines; the facility must comply to be eligible for coverage
- Eligible Activities
- Manufacturing and services, including retail trade.
Not eligible: educational and training institutions, Self Help Groups (SHGs) and agriculture-related activities. - Loan Amount
- For MSEs — credit facility up to ₹500 lakh can be covered on an outstanding basis.
For Regional Rural Banks and select financial institutions — up to ₹50 lakh. - Guarantee Coverage
- 75% to 85% (50% coverage for retail activity)
- Collateral / Third-Party Guarantee
- Not required
- Member Lending Institutions
- More than 100 — PSUs, NBFCs, RRBs, private banks, SUCBs, financial institutions, small finance banks and foreign banks
- Annual Guarantee Fee
- For amounts up to ₹1 crore, revised down from 2% to as low as 0.37%
How the credit guarantee works
A credit guarantee is an arrangement where the loan to the applicant is backed by a third party without the need for external collateral or a personal guarantee. The loan sanctioned by the member lending institution is backed by the scheme, which guarantees a large portion of the amount.
Under CGTMSE, both new and existing micro and small enterprises — manufacturing and service alike — are eligible for a credit facility of up to ₹5 crore.
Coverage criteria
- The trust guarantees up to 75% of the defaulted principal, rising to 85% for a select category of borrowers. The cover carries a maximum guarantee cap of ₹37.50 lakh for credit facilities up to ₹50 lakh.
- Term credit including interest on the principal is covered for one quarter, or the outstanding capital advances including interest as on the date the account becomes a Non-Performing Asset or the date of filing suit — whichever is lower.
- Other charges — penal interest, commitment charge, service charge or any other levy or expense — do not qualify for guarantee cover.
Benefits of the scheme
- Ceiling for guarantee coverage raised from ₹200 lakh to ₹500 lakh.
- Guarantee fee reduced, cutting the overall cost of borrowing for MSEs.
- Microfinance institutions are now eligible as Member Lending Institutions.
- Concessions on fees and increased coverage for SC/ST borrowers.
- Guarantee fee reduced by 10% and coverage extended to 85% for women, ZED-certified units and units in aspirational districts.
- Annual guarantee fee structure revised, with the fee reduced to as low as 0.37%.
Who is eligible
Eligible borrowers
All existing and new Micro and Small Enterprises (MSEs). Small and micro enterprises owned or operated by women entrepreneurs are eligible for guarantee cover of 80%, while credit facilities in the North East Region are eligible for a guarantee of ₹50 lakh.
Lending institutions offering funds under the scheme
- Scheduled Commercial Banks (SCBs)
- Regional Rural Banks (RRBs)
- Small Finance Banks (SFBs)
- Non-Banking Financial Companies (NBFCs)
- Small Industries Development Bank of India (SIDBI)
- National Small Industries Corporation (NSIC)
- North Eastern Development Finance Corporation (NEDFi)
Not eligible for guarantee cover. Educational institutions, agriculture, training institutions and Self-Help Groups. The CGTMSE loan limit itself depends on the applicant’s profile and business requirement.
The four steps to availing a CGTMSE-backed loan
The objective of CGTMSE is to get banks to assess small and micro businesses objectively, giving weight to project viability and business model validation rather than to the security on offer. To have the loan covered, the borrower pays a guarantee fee and service charge in addition to the bank’s interest. The fee is currently payable at 1.5%, and at 0.75% for the North-Eastern region including Sikkim.
Formation of the business entity
Before starting the loan approval process, incorporate the appropriate structure — private limited company, LLP, one person company or proprietorship — and obtain the necessary approvals and tax registrations to execute the project.
Preparing the business report
Conduct a market analysis and prepare a business plan covering the business model, promoter profile and projected financials. This report is presented to the credit facility alongside the application. Reports prepared by experienced professionals materially improve the chance of approval.
Sanction of the loan by the bank
The request usually covers both credit terms and working capital facilities. The bank analyses the viability of the business model, processes the application and accords sanction as per its policy.
Obtaining the guarantee cover
Once the loan is sanctioned, the bank applies to the CGTMSE authority for guarantee cover. On approval, the borrower pays the guarantee fee and service charges.
The list of Member Lending Institutions under CGTMSE runs to 141 banks, covering the major rural, urban, public sector and private sector banks of India — including State Bank of India, Punjab National Bank and United Bank of India.
Beware of agents. CGTMSE does not grant loans, credit facilities or subsidies itself, and it has no loan agents or agencies for arranging loans or credit guarantees through its member lending institutions. Anyone claiming otherwise is misrepresenting the scheme.
Documents required
- Duly filled CGTMSE loan application form with passport-sized photographs.
- Business incorporation or company registration certificate.
- Business project report.
- CGTMSE loan coverage letter.
- Copy of the loan approval from the bank.
- Any other document required by the bank.
Claim settlement procedure
After the final part of the loan amount is disbursed, there is a lock-in period of 18 months before a claim can be preferred. The lender prefers a claim once the defaulted account has been classified as an NPA. The commencement of recovery proceedings after the account is called an NPA is what constitutes the CGTMSE claim settlement procedure.