Loans to Stressed MSMEs: Is guarantee comes from GGTMSE instead of a sovereign guarantee?

According to news reports, Bankers are unhappy to learn that the newly envisaged Rs.20000 crore loan guarantee scheme for micro, small and medium enterprises (MSMEs) will not be available from the Government of India as expected but from the credit guarantee trust fund for micro and small enterprises (CGTMSE).

CGTMSE guarantee has its caveats, it settles only a certain percentage of the claim amount, does not reimburse full money lost by the lender.  Further, there will be some capital charges/Guarantee fee to be paid to avail of the CGTMSE guarantee. In case the Government guarantees a loan, capital charges become zero.

It is learned that Small Industries Development Bank of India (Sidbi) has issued a draft guidelines according to which loan guarantee scheme for micro, small and medium enterprises (MSMEs) will not be available to businesses which had repayments overdue by more than 30 days as on February 29, 2020. As per the draft guidelines, the guarantee scheme will apply to all additional emergency credit lines sanctioned to MSMEs after March 1, 2020, till August 31, 2020. The amount of emergency working capital funding would be equivalent to 15% of the working capital for loans up to Rs 1 crore. For loans between Rs 1 crore to Rs 25 crore the emergency working capital funding would be equivalent to 10% of the working capital. “In case the amount of emergency fund as per above threshold is not able to cover six months of salary outgo (including contractual worker) for people employed by MSME, the working capital fund has to be enhanced to the amount of 6 months of salary outgo,” the draft guidelines said. The proof of ascertaining the salary outgo of an MSME is entrusted upon the lender. “This is to ensure that MSMEs don’t lay off any employee due to the lack of funds,” it said. In case a borrower has existing limits with more than one lender, the emergency funding limit can be availed with only one lender.