Co-lending by banks and non-banking finance companies (NBFCs) to micro and small enterprises (MSEs) is expected to get a fillip as a credit guarantee scheme (CGS) has been introduced specifically to cover loan defaults in this sector.

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) recently launched a CGS for co-lending (CGSCL) to provide guarantee cover to credit facilities extended to MSEs under the co-lending model (CLM).

CGSCL covers credit facilities extended to MSEs jointly by scheduled commercial banks (excluding small finance banks, regional rural banks, co-operative banks and local area banks) and NBFCs.

The introduction of CGSCL comes in the backdrop of Union Finance Minister Nirmala Sitharaman stating in the Union Budget for FY23 that CGTMSE scheme will be revamped with required infusion of funds. This will facilitate additional credit of ₹2 lakh crore for MSEs and expand employment opportunities, she added.


Banks’ credit to MSE sector rose by a robust 19.7 per cent year-on-year (y-o-y) as on January 28, 2022, against only 0.5 per cent y-o-y growth as on January 29, 2021, per latest RBI data.

This growth came on the back of government’s support measures to the sector and enhancement of the emergency credit line guarantee scheme (ECLGS) to support Covid-19 affected sectors.

Once the aforementioned measures are withdrawn, CGSCL could act as a catalyst, ensuring continued credit support from lenders to MSEs, a senior public sector bank official said.

He emphasised that NBFCs have strengths in terms of origination and recovery while banks’ have the advantage of lower cost of funds.

Once these two category of lenders join forces, the ultimate beneficiaries, the MSEs, will get credit at an affordable cost.

Under CGSCL, CGTMSE will provide guarantee cover to credit facilities extended by a pair of Member Lending Institutions to a single eligible borrower in MSE sector.


This guarantee cover will be available for credit facility (i) not exceeding ₹2 crore for a credit facility secured by way of primary security; and (ii) not exceeding ₹1 crore for unsecured credit facility by way of term loan and/ or working capital facilities without any collateral security and/or third party guarantees or such amount as may be decided by the Trust from time to time.

The guarantee cover, however, will not be available in case any credit facility in respect of which risks are additionally covered under a scheme operated / administered by any other Credit Guarantee organisation, Government or by any general insurer or any other person or association of persons carrying on the business of insurance, guarantee or indemnity or the Reserve Bank of India, to the extent they are so covered.

Further, any credit facility for loans up to ₹10 lakh to micro enterprises will not be eligible to be covered under the scheme if the said facility has been covered under MUDRA guarantee scheme through NCGTC Ltd or any other guarantee scheme while applying for guarantee cover for such proposal.

The extent of guarantee coverage provided by CGTMSE is 75 per cent of the amount in default for credit facility secured by way of primary security and 50 per cent of the amount in default for unsecured credit facility. CGTMSE has been jointly set up by Government of India and SIDBI