Credit Guarantee Scheme for Micro & Small Enterprises
Context:
- Union Finance Minister Mrs. Nirmala Sitharaman had announced the revamping of Credit Guarantee Scheme for Micro & Small Enterprises with effect from 01.04.2023, with an infusion of Rs 9,000 crore to the corpus to enable additional collateral-free guaranteed credit of Rs. 2 lakh crore and the reduction in the cost of the credit by about 1 per cent.
Relevance:
GS-02 (Government Schemes and Policies), GS-03 (Indian Economy)
Credit Guarantee Scheme for Micro & Small Enterprises:
- It is an initiative launched by the Government of India to provide financial support and encourage entrepreneurship in the micro and small enterprises sector.
- The scheme aims to address the challenges faced by these enterprises in accessing credit from financial institutions and promotes their growth and development.
Objective and Benefits:
- The primary objective of the scheme is to provide collateral-free credit to micro and small enterprises, thereby reducing their risk burden and facilitating easy access to finance.
- Under the scheme, eligible enterprises can avail credit facilities up to a specified limit without the requirement of providing tangible collateral.
- This enables entrepreneurs to focus on business expansion, technological upgradation, and increasing productivity.
Implementation and Coverage:
- The Credit Guarantee Scheme is implemented by the Small Industries Development Bank of India (SIDBI) in collaboration with various financial institutions such as banks and non-banking financial companies (NBFCs).
- It covers both new and existing micro and small enterprises engaged in manufacturing, services, and allied sectors.
- The scheme provides guarantees on credit facilities like term loans, working capital loans, and other financial products extended to eligible enterprises.
Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE):
- The CGTMSE was established to administer the Credit Guarantee Scheme effectively.
- It operates as a trust that manages the guarantee funds and ensures timely reimbursement of the guaranteed amount to the lending institutions in case of default by the borrower.
Impact and Future Prospects:
- The Credit Guarantee Scheme has played a significant role in empowering micro and small enterprises by providing them with easier access to credit.
- It has contributed to the growth of the sector, enhanced employment opportunities, and promoted inclusive economic development.
Conclusion:
- The Credit Guarantee Scheme for Micro & Small Enterprises is a critical initiative aimed at promoting the growth and development of micro and small enterprises in India.
- It offers collateral-free credit, encourages entrepreneurship, and contributes to economic progress.
