CGTMSE guarantee for credit facility covered by collateral security

The Credit Guarantee fund Trust for Micro Small Enterprises (CGTMSE) has been providing guarantee coverage to any collateral / third party guarantee free credit facilities extended by eligible institutions (Member lending institutions (MLI) like banks, financial institutions, select NBFCs and Small Finance banks etc.).  Hitherto, all activities* that come under manufacturing and service sector as per MSMED Act, 2006 are eligible for coverage with a maximum credit cap of Rs.200 lakh (Rupees Two Hundred lakh only).

GTMSE has now introduced a new “Hybrid Security” product allowing guarantee cover for the portion of credit facility which is not fully covered by collateral security. In the partial collateral security model, now introduced, the Banks and financial institutions  will be allowed to obtain collateral security for a part of the credit facility, and  the residual part of the unsecured (without collateral) credit facility, up to a maximum of 200 lakh  can be covered under Credit Guarantee Scheme of CGTMSE.

Prime security is an asset acquired by a borrower under a loan and it is the same asset that is offered to the lender as a security for the financed amount. The collateral security is one where the lender asks the borrower to provide extra security in addition to the prime security.  In the partial collateral security model, CGTMSE will, have a pari-passu charge on the primary security as well as on the collateral security provided by the borrower for the credit facility.

The 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. The above change of allowing partial collateral security under the ambit of Credit Guarantee Scheme of CGTMSE shall be applicable to fresh credit facilities sanctioned by MLIs on or after April 01, 2018

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