The Hindu Business Line : Credit guarantee trust for SMEs gets $5-m support

Booster for small units
The minimum loan ticket size would be about Rs 50 lakh.
The guarantee fee would be lower than the prevailing levels.
To provide a 50-per cent risk sharing for loans extended by banks to micro and small enterprises.
The scheme to be reviewed after one year.

C. Shivkumar

Bangalore, Dec. 7 The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) has started a risk sharing fund with $5 million support from World Bank.

Speaking to Business Line here today, the CGTMSE Chief Executive Officer, Mr O. S. Vinod Kumar, said “This is a pilot project and modalities will be finalised after discussions with World Bank.” Unlike the guarantee schemes offered by CGTMSE, the minimum loan ticket size would be about Rs 50 lakh. Presently, only loans up to Rs 25 lakh are eligible for CGTMSE guarantees.

Mr Kumar said the guarantee fee would be lower than the prevailing levels. The proposed guarantee fees for the World Bank-supported scheme would be 0.75 per cent of the loan amount. Presently, CGTMSE levies a guarantee fee of 1.5 per cent and annual service fee of 0.75 per cent.

Credit rating

The World Bank-supported scheme would provide a 50-per cent risk sharing for loans extended by banks to micro and small enterprises in the country. However, for loans extended through this scheme, banks would have to carry out a credit rating, either internal or through an external agency acceptable to the CGTMSE, he added. The scheme would be reviewed at the end of one year, he added.

CGTSME till November-end this year had provided guarantees for Rs 2,293 crore for about 84,000 loan proposals by all the banks. Topping the list is State Bank of India that had referred 19,887 loans proposals to CGTSME for Rs 429 crore. Mr Kumar said about 86 per cent of the guarantees were provided to loans with an average ticket size of Rs 5 lakh, he said.

All the proposals referred to the CGTMSE were loans for which no collateral was available. Banks currently insist on a physical asset coverage ratio of at least 150 per cent of the loan value. CGTSME provides a credit enhancement mechanism in the form of guarantees up to 75 per cent of the loan size. Consequently risk of loan delinquency on the banks was just 25 per cent, he added. This implied that banks need to risk weight for only 25 per cent of their asset exposure.

However, the guarantee proposals extended by CGTMSE were in excess of the current corpus of Rs 1,584 crore and close to its targeted corpus of Rs 2,500 crore. But Mr Vinod Kumar said the corpus could be raised if necessary. The capital support for CGTMSE currently is provided by the Government and SIDBI. But so far the CGTSME has had claims only to the extent of Rs 6 crore, he said.

CGTMSE, promoted by the Government and the Small Industries Development Bank of India, provides guarantees for bank term and working capital loans to small and micro enterprises in the country. The guarantee acts as a credit enhancement mechanism for lenders and mitigating delinquency risks. The guarantees are provided to loans extended by 66 member institutions of the fund that include public, private and cooperative sector banks in the country. But more members including micro finance institutions and foreign lender could be included, Mr Kumar said.

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