CGTSI/(44)/521

July 2, 2007

All Member Lending Institutions of CGTSI

Circular No. 36 / 2007-08

Modifications in the Credit Guarantee Scheme

Based on the modifications suggested in the "Package for promotion of Micro and Small Enterprises" as approved by Cabinet Committee on Economic Affairs on October 16, 2006 and announced in the Parliament on February 27, 2007 by the Minister of Micro, Small and Medium Enterprises and further approvals as obtained from the Settlors of the Trust, it has been decided to effect the following changes in the scheme:

1. The Trust has been renamed as the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

2. The Scheme will be known as the 'Credit Guarantee Fund Scheme for Micro and Small Enterprises' instead of 'Credit Guarantee Fund Scheme for Small Industries'.

3. The coverage of the Scheme will now be extended to all new and existing Micro and Small Enterprises (both in the Manufacturing Sector as well as in the Service Sector) instead of SSI /SSSBE(IR) units.

4. The eligible loan limit under the Scheme will now be Rs.50 lakh instead of Rs.25 lakh as obtaining earlier.

5. The credit guarantee cover will be raised from 75% to 80% for the following category of loans:

a. Loans to Micro enterprises upto Rs. 5 lakh; and

b. Loans to Micro and Small enterprises operated and/ or owned by women.

The consequential changes in the Scheme are given in the Annexure. While, we are confident that the MLIs, by and large, have put in place proper appraisal mechanism for credit proposals being covered under the Scheme ; we request that while covering credit proposals under the enhanced ceiling of Rs. 50 lakhs the MLIs should go in for rigorous appraisal of such credit proposals to ensure the quality of such loans. You are requested to advise your operating offices (Zonal / Branch Offices) about the modification made to the Scheme as above. We solicit your cooperation in covering maximum proposals under the Scheme.

Yours faithfully,

Sd/-

(P.M.Radhakrishnan)

Deputy General Manager

Annexure

Ch. No.

Original Provision

Modified Provision

1. (i)

The Scheme shall be known as the Credit Guarantee Fund Scheme for Small Industries (CGFSI)

The Scheme shall be known as the Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGMSE)

2 (iv)

"Eligible borrower" means new or existing small scale industrial units, including information technology (IT) and software industries to which credit facility has been provided by the lending institution without any collateral security and/or third party guarantees.

"Eligible borrower" means new or existing Micro and Small Enterprises to which credit facility has been provided by the lending institution without any collateral security and/or third party guarantees.

2 (v)

'Guarantee Cover' means maximum cover available per eligible borrower which shall not exceed 75 per cent of the amount in default in respect of credit facility extended by the lending institution, subject to maximum of Rs. 18.75 lakh (Rupees eighteen lakh seventy five thousand only).

'Guarantee Cover' means maximum cover available per eligible borrower which shall not exceed 75 per cent of the amount in default in respect of credit facility extended by the lending institution, subject to maximum of Rs. 37.50 lakh (Rupees thirty seven lakh fifty thousand only).

2(xi)

"Scheme" means the Credit Guarantee Fund (Scheme) for Small Industries.

"Scheme" means the Credit Guarantee Fund (Scheme) for Micro and Small Enterprises

2 (xiii).

" Small Scale Industrial Unit" means an industrial undertaking in respect of which an affidavit has been furnished by the owners or other parties entitled to act for that undertaking or the lending institution seeking guarantee has satisfied itself that the investment in plant and machinery is not in excess of such amounts as may be specified by the Central Government in regard thereto and subject to such other terms and conditions as may be prescribed by the Government or the Trust in this behalf.

As per the MSMED Act, 2006 an "enterprise" means an industrial undertaking or a business concern or any other establishment, by whatever name called, engaged in the manufacture or production of goods, in any manner, pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 or engaged in providing or rendering of any service or services; and "Micro and Small Enterprises" are defined in 7.1.a.i) and ii) & in 7.1.b.i) and ii) of the said Act .

2 (xv).

"Trust" means the Credit Guarantee Fund Trust for Small Industries set up by Government of India and SIDBI with the purpose of guaranteeing credit facility(ies), extended by the lending institution(s) to the eligible borrowers.

"Trust" means the Credit Guarantee Fund Trust for Micro and Small Enterprises set up by Government of India and SIDBI with the purpose of guaranteeing credit facility(ies), extended by the lending institution(s) to the eligible borrowers.

4.

Credit facilities eligible under the Scheme :

The Trust shall cover credit facilities extended, by eligible lending institution(s) in respect of a single eligible borrower not exceeding Rs.25 lakh by way of term loan and/ or working capital facilities on or after entering into an agreement with the Trust, to the small scale industrial units including IT and software industries, without any collateral security and\or third party guarantees.

Credit facilities eligible under the Scheme :

The Trust shall cover credit facilities extended, by eligible lending institution(s) in respect of a single eligible borrower not exceeding Rs.50 lakh by way of term loan and/or working capital facilities on or after entering into an agreement with the Trust, to the Micro and Small enterprises, without any collateral security and\or third party guarantees.

9.

Extent of the guarantee :

The Trust shall provide guarantee cover of up to 75% of the amount in default of the credit facility extended by the lending institution to an eligible borrower, subject to a maximum guarantee cover of Rs.18.75 lakh (Rupees eighteen lakh seventy five thousand only) per borrower. The guarantee cover will commence from the date of payment of guarantee fee and shall run through the agreed tenure of the term credit in respect of term credit/ composite credit. Where working capital alone is extended to the eligible borrower, the guarantee cover shall be for a period of 5 years or a block of 5 years, or for such period as may be specified by the trust in this behalf.

Extent of the guarantee :

The Trust shall provide up to 75% of the amount in default of the credit facility extended by the lending institution to an eligible borrower, subject to a maximum guarantee cover of Rs.37.50 lakh (Rupees thirty seven lakh fifty thousand only). The extent of guarantee cover will be raised up to 80% for specific categories of borrowers viz. micro enterprises for loans upto Rs.5 lakh and for micro and small enterprises operated and/ or owned by women irrespective of amount. The guarantee cover will commence from the date of payment of guarantee fee and shall run through the agreed tenure of the term credit in respect of term credit / composite credit. Where working capital alone is extended to the eligible borrower, the guarantee cover shall be for a period of 5 years or a block of 5 years, or for such period as may be specified by the trust in this behalf.