Banking Article, Banking Finance 2021, Banking Finance February 2021

Credit Guarantee schemes A tool for economic and social upliftment

Credit guarantee programmes are designed to share the lending risk of the lenders and in turn, facilitate access to finance for the prospective borrowers. But India is relatively late entrant to the world of credit guarantees when compared to other Asian, European or Latin American countries.

Although ECGC (Formerly Export Credit Guarantee Corporation of India Ltd.), in late 1950s and DICGC (Deposit insurance and credit guarantee corporation) in 1960s had started working in the Indian credit guarantee space.

After that it took another 40 years for CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) to get established in year 2000 focusing Micro and small borrowers.

After realizing the CGTMSE success with respect to MSE borrower which worked for single guarantee segment, the government relooked at expanding the credit guarantee space.

Subsequent to the Central Budget announcements to set up various credit guarantee funds, The ministry of finance established the new credit guarantee super structure called “NCGTC” (National Credit Guarantee Trustee Company Ltd) To uplift the underperforming segments of the economy to the desired levels.

A common trustee company in the name and style of National Credit Guarantee Trustee Company Ltd as set up by the Department of Financial Services, Ministry of Finance, and Government of India to act as a common trustee company to manage and operate various credit guarantee trust funds.

Overview of NCGTC:-

 (National Credit Guarantee Trustee Company Ltd)

NCGTC was incorporated under the Indian Companies Act, 1956 on March 28, 2014 with a paid-up capital of ₹10 crore, with its registered office at MSME Development Centre, C-11, G-Block, Bandra Kurla Complex, Bandra [East], Mumbai-400051.

The common architecture of NCGTC has been designed to handle multiple guarantee programmes under a single umbrella organization. This is with a view to achieve operational efficiencies and economies of scale through sharing of resources such as Technology, premises, manpower, risk management solutions and other support services.

The intent of NCGTC is therefore, to manage multiple guarantee schemes as part of a larger financial inclusion programme of the government covering different cross-sections and segments of the economy like students, micro entrepreneurs, women entrepreneurs, SMEs, skill and vocational training needs, etc.

The NCGTC Fund Architecture Model:-

Trustee – Current NCGTC Managed Trust Fund:-

Presently, there are five dedicated credit guarantee Trusts under the Management of NCGTC viz. Credit Guarantee Fund Scheme for Educational Loans (CGFEL), Credit Guarantee Fund Scheme for Skill Development (CGFSD), Credit Guarantee Fund Scheme for Factoring (CGFF), Credit Guarantee Fund for Micro Units (CGFMU) and Credit Guarantee Fund for Stand Up India (CGFSI). Cumulatively, these five Trusts have a committed credit guarantee corpus of ₹ 13,000 crore.

NCGTC Managed Trust Fund

 

1) Credit Guarantee Fund for Skill Development (CGFSD)

Subject to the  provisions of the Scheme, NCGTC undertakes, in relation to Skill Loans ranging from Rs.5000/- to Rs.1,50,000/- extended to an eligible borrower by a Member Lending Institution (MLI) which has entered into the necessary agreement for this purpose with NCGTC, to provide guarantee against default in repayment of skill loans extended by the lending institutions.Guarantees for Skill Development Loans by the member banks extended without collateral or third-party guarantee and the fund has a Target of 10-20 lakh loans to be guaranteed in a year.

The Fund shall cover skill loans extended by Member Lending Institution(s) to an eligible borrower on or after entering into an agreement with NCGTC, without any collateral security and/or third party guarantee, provided that-

The course is run by Industrial Training Institutes (ITIs), Polytechnics or in a school recognized by central or State education Boards or in a college affiliated to recognized university, training partners affiliated to National Skill Development Corporation (NSDC)/Sector Skill Councils, State Skill Mission, State Skill Corporation, preferably leading to a certificate / diploma / degree issued by such organization as per National Skill Qualification Framework (NSQF). The Government of India / State Governments may, from time to time, notify institutes/organizations for the purpose.

Courses run by above mentioned Training Institutes aligned to National Skill Qualification Framework (NSQF) shall be covered by the Skill Loan. There is no minimum course duration.

Extent of the guarantee-The Fund shall provide guarantee cover to the extent of 75% of the amount in default. The Fund reserves the right to modify the same. The guarantee cover will commence from the date of payment of guarantee fee and shall run through the agreed tenure of the Skill Loans.

Any Claim under the Credit Guarantee Scheme for Skill Development would be settled at 100 % of the guaranteed amount at one go, subject to the receipt of a certificate from the MLI to the effect that all avenues of recovering the amount in default have been exhausted; that there is no further scope for recovering the default amount and that the claim is found in order and complete in all respects.

2) Credit Guarantee Fund scheme for Education loans (CGFSEL)

Guarantees for Education Loans by the member banks of IBA up to ₹ 7.5 lakh extended without collateral or third-party guarantee and the fund has a Target of 10 lakh loans to be guaranteed in a year.

Extent of the guarantee- The Fund shall provide guarantee cover to the extent of 75% of the amount in default. The Fund reserves the right to modify the same. The guarantee cover will commence from the date of payment of guarantee fee and shall run through the agreed tenure of the Education Loan.

NCGTC shall pay 75 per cent of the guaranteed amount on preferring of eligible claim by the lending institution, within 30 days, subject to the claim being otherwise found in order and complete in all respects.

NCGTC shall pay to the lending institution interest on the eligible claim amount at the prevailing Bank Rate for the period of delay beyond 30 days. The balance 25% of the guaranteed amount will be paid after obtaining a certificate from the Member Lending Institution (MLI) that all avenues for recovering the amount have been exhausted. On a claim being paid, NCGTC / the Fund shall be deemed to have been discharged from all its liabilities on account of the guarantee in force in respect of the borrower concerned.

3) Credit Guarantee Fund Scheme for Factoring (CGFSF)

The Credit Guarantee Fund Scheme for Factoring (CGFSF) shall be confined to domestic factoring of receivables of MSMEs in India.

Exposure Limits:-The exposure limit for purchaser would be up to 10% (Relaxable up to 20% in case of AAA rated purchasers) of the corpus of Credit Guarantee Corpus Fund for Factoring as per the last audited figures for factoring ‘without recourse’ only.

Credit guarantees cover on the amount in default covering factoring transactions [assistance extended by factors to MSMEs] as per Factoring Regulations Act 2011 is detailed here under:

  • First loss of 10% of the amount in default to be borne by Factors.
  • The remaining 90% of the amount in default will be borne by NCGTC and Factors in the ratio of 2:1 respectively.
  • Only the assigned factored debts would be covered under guarantee scheme.
  • The guarantee cover will commence from the date of payment of guarantee fee and shall run through the currency of the factoring facility.
  • Claims shall be filed by MIs (Member institutions) with the proposed Fund, after 90 days from the date of account turning NPA but before 120 days. While, 75% of claim amount shall be settled within a period of 120 days from the date of the lodging of claim and completion of required documents, the balance 25% of the claim amount shall be paid after 24 months from the date of 1st settlement or exhausting all legal remedies based on a certificate from the factor, whichever is earlier.

4) Credit Guarantee Fund for Micro Units (CGFMU)

Guarantees for loans up to the specified limit (currently ₹ 10Lakh) sanctioned by Banks / NBFCs / MFIs / other financial intermediaries engaged in providing credit facilities to eligible micro units. Further, Overdraft loan amount of ₹ 5,000/- sanctioned under PMJDY accounts shall also be eligible to be covered under Credit guarantee Fund.

5) Credit Guarantee Scheme for Standup India (CGSSI)

Guarantees for credit facilities of over ₹ 10 lakh & up to ₹ 100 lakh sanctioned by the eligible lending institutions without any collateral security and/or third party guarantees, under the Stand up India Scheme (SC/ST/Women for setting up Greenfield enterprises).

Extent of the guarantee-The Fund shall provide guarantee cover to the extent of 80% of the amount in default for credit facility above Rs.10 lakh and up to Rs.50 lakh, subject to a maximum of Rs.40 lakh.For credit facility above Rs.50 lakh and up to Rs.100 lakh – Rs.40 lakh plus 50% of amount in default above Rs.50 lakh subject to overall ceiling of Rs.65 lakh of the amount in default.

The Fund reserves the right to modify the same. The guarantee cover will commence from the date of payment of guarantee fee and shall run through the agreed tenure of the Stand Up India credit facilities.

Funds outside NCGTC (Technology platform Sharing)

Here Technology platform is being shared for guarantee products of development finance institutions and other Quasi Government Funds.

Funds inside NCGTC

SIDBI is implementing the Poorest States Inclusive Growth Programme (PSIG Programme), funded by UK Aid from the Department for International Development (DFID), U.K. The Programme, with duration of 6 years from April 2012, aims to improve access for poor, mainly women, to a variety of financial services in the 4 low income states viz., Bihar, Orissa, Madhya Pradesh and Uttar Pradesh. NCGTC manages two collaterized funds under the Programme.It works on Fee based for using NCGTC Technology platform.

Guarantee funds outside India (Technology platform Sharing)

It works on Technology platform Sharing basis for the Guarantee funds outside India.

 

Emergency credit line guarantee scheme (ECLGS)

It is launched by Government of India as a special scheme in view of COVID-19 crisis. It is to provide 100% guarantee coverage to banks and NBFCs to enable them to extent emergency credit facilities to business enterprises/MSMEs in view of COVID-19 to meet their additional term loan/ working capital requirements.

Emergency credit line-the amount of Emergency credit line to be extended to business enterprises/MSMEs would be up to 20 % of total outstanding as on Feb, 29, 2020.

There will be 100% guarantee coverage for the additional funds sanctioned under the emergency credit line scheme.

Eligible Borrower-Business enterprises/MSMEs with outstanding loan of up to Rs 25 crore as on 29 feb 2020 and turnover of up to Rs 100 crore in FY 2019-20. In case accounts for FY 2019-20 are yet to be audited/finalized, the MLI may rely upon the borrower’s declaration of turnover. The Scheme is valid for existing customers on the books of the MLI.

Borrower accounts should be less than 60 days past due as on 29th February, 2020 in order to be eligible under the Scheme. For the purpose of this Scheme, Business Enterprises / MSMEs would also include loans covered under Pradhan Mantri Mudra Yojana (PMMY).

 

Repayment Tenure- Maximum tenure of 4 years from the date of disbursement (including moratorium of maximum of One year (interest shall be payable as and when debited).

Fee/ charges- For this no charges/guarantee fees to be charged by MLIs/NCGTC.

Duration- The Scheme would be applicable to all loans sanctioned under GECL(Guaranteed Emergency Credit Line) during the period from the date of issue of these guidelines by NCGTC to 31.10.2020, or till an amount of Rs 3, 00,000/- crore is sanctioned under the GECL, whichever is earlier.

 

 

Other guarantee schemes

ECGC Ltd. (Formerly Export Credit Guarantee Corporation of India Ltd.), wholly owned by Government of India, was set up in 1957 with the objective of promoting exports from the country by providing Credit Risk Insurance and related services for exports. It functions under the administrative control of Ministry of Commerce & Industry, and is managed by a Board of Directors comprising representatives of the Government, Reserve Bank of India, banking, Insurance and exporting community.

Over the years it has designed different export credit risk insurance products to suit the requirements of Indian exporters and commercial banks extending export Credit. ECGC is essentially an export promotion organization, seeking to improve the competitiveness of the Indian exporters by providing them with credit insurance covers.

 

ECGC Provides a range of credit risk insurance covers to exporters against loss in export of goods and services, Offers Export Credit Insurance covers to banks and financial institutions to enable exporters to obtain better facilities from them. Provides Overseas Investment Insurance to Indian companies investing in joint ventures abroad in the form of equity or loan.

 

Credit Guarantee Fund Trust for Micro & Small Enterprises-

 

Ministry of Micro, Small & Medium Enterprises (MSME), Government of India launched Credit Guarantee Scheme (CGS) so as to strengthen credit delivery system and facilitate flow of credit to the MSE sector. To operationalise the scheme, Government of India and SIDBI set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

 

The guarantee cover available under the scheme is to the extent of 50%/ 75% / 80% & 85% of the sanctioned amount of the credit facility. The extent of guarantee cover is 85% for micro enterprises for credit up to  5 lakh. The extent of guarantee cover is 50% of the sanctioned amount of the credit facility for credit from Rs 10 lakh to Rs 100 lakh per MSE borrower for retail trade activity.

 

CONCLUSION

Apart from the guarantee schemes covered above few other schemes are also there which are catering the needs of different segments but not related to NCGTC like-

 

 

 

The basic requirement is that the scheme is to be implemented judiciously by the Banks and other money lending institutions, so that social as well as economic development of the needy person can take place, especially when they are not having support in terms of third party guarantee or collateral as the case may be.

These schemes are discussed briefly and detailed contents can be reached through references mentioned below.

In our country looking at the today’s scenario it is very much important to get skilled through various skill development schemes and support and to start a business or entrepreneurship, it’s very important to utilize these schemes based on the requirement by the deserving people.

Now various guarantee providing institutions like Banks and financial institutions are also required to work judiciously for  implementing it in true spirit and provide the benefits to deserving individuals/firms so, that social and economic  upliftment can take place.

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