The Government of India, to give a much-needed boost to the startup industry, has recently announced a special scheme, known as the Credit Guarantee Scheme for Startups or Credit Guarantee Fund Scheme or CGSS. An offshoot of the Startup India plan launched by the Prime Minister, this scheme, with a contribution of Rs.2000 crore, will enable startups to obtain collateral-free loans for starting business.
Read on below to know more about what this scheme is about, what it promises to provide, and how it is likely to benefit different categories of eligible business owners across India.The Government of India established the Credit Guarantee Scheme for Startups with a fixed corpus for providing credit guarantees to loans extended to DPIIT-recognised startups by scheduled commercial banks, non-banking financial companies (NBFCs), and venture debt funds (VDFs) under SEBI-registered alternative investment funds.
CGSS is aimed at providing credit guarantee up to a specified limit against loans extended by Member Institutions (MIs) to finance eligible borrowers, viz., Startups, as defined in the Gazette Notification issued by DPIIT and amended from time to time. The credit guarantee coverage under the scheme would be transaction-based and umbrella-based. The exposure to individual cases would be capped at INR 10 crore per case or the actual outstanding credit amount, whichever is less.
As of 3rd November 2023, INR 132.13 crore worth of guarantees was issued to 46 startups. Out of this, INR 11.3 crore worth of guarantees have been issued to 7 women-led startups. The number of employees employed by these startups is 6073. The startups covered range from a variety of industries, including consumer services, capital goods, agriculture & allied activities, services, information technology, metals and mining, textiles, and the utilities industry, and are spread across states like Delhi, Gujarat, Haryana, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Tamil Nadu, West Bengal, and Uttar Pradesh.
Highlights of Credit Guarantee Scheme for Startups (CGSS)
- The guarantee will be offered by lending institutions, that are members in this scheme, to eligible startups that must be Department of Industrial Policy and Promotion (DIPP) recognised.
- CGSS will offer guarantees based on portfolios wherein every included portfolio will consist of 10 or more startup loans for a financial year.
- Credit guarantees of up to Rs.5 crore will be offered to every eligible case, including assistance, such as working capital, venture capital, optionally convertible debt, debentures, term loan, etc.
- This scheme will be offered to provide credit of up to 75% credit, subject to a limit of Rs.150 lakh.
- Micro enterprises seeking loans of below Rs.5 lakh will be offered up to 85% of the requested credit amount.
- Up to 80% credit will be extended to MSME’s operated or owned by women and NER (including Sikkim).
- A guarantee cover of up to 50% of the amount, subject to a limit of Rs.50 lakh, will be offered for MSME retail trade.
Features of the Credit Guarantee Scheme for Startups
- The startup has to be recognised by the DIPP (Department of Industrial Policy and Promotion) in order to be eligible for the credit guarantee.
- The guarantees will be offered based on portfolios, and these portfolios will consist of at least 10 startup loans for a particular financial year.
- The credit guarantee offered will be inclusive of any other assistance (Venture capital, working capital, debentures, optionally convertible debt, term loans etc.) and will be offered up to the amount of Rs. 5 crore to every eligible startup.
- The coverage offered by the scheme is as follows – a. The scheme will be providing credit to cover up to 75% of the credit facility subject to a ceiling of Rs. 150 lakh. b. Where loans of less than Rs. 5 lakh are granted to micro-enterprises, the scheme covers upto 85% of the credit facility. c. MSMEs operated or owned by women and all loans granted to NER (North-East Region) including Sikkim will have up to 80% of the credit facility covered by this scheme. d. 50% of the amount of credit for MSME retail trade will be covered under this scheme, subject to a ceiling of Rs. 50 lakh.
Pre-requisites of CGSS
- To fulfil the KYC norms – a. For all resident partners or directors – Aadhaar is compulsory. b. For all non-resident partners or directors – passport number.
- The management of the National Credit Guarantee Trust Company will oversee the functioning of the scheme and set the terms and rules for its functioning as it sees fit.
- For the startups that are eligible under this scheme, the member lending institutions will offer a guarantee of up to Rs. 500 lakh. There is no need for any collateral security.
- A Management Committee shall be formed in order to oversee and monitor the Credit Guarantee Scheme for MSMEs.
- A Risk Evaluation Committee shall be formed so as to take up and address any conflicts of interest that may arise in any given case.
Eligible Lending Institutions under CGSS
- Scheduled commercial banks – Public sector banks, private sector banks, foreign banks.
- Certain Regional Rural Banks categorized as ‘Sustainable Viable’ by NABARD
Certain other financial institutions deemed as chosen by the Govt. of India as per set criteria. These include:
- Small Industries Development Bank of India (SIDBI)
- Delhi Financial Corporation
- North Eastern Development Finance Corporation (NEDFI)
- Kerala Financial Corporation
- National Small Industries Corporation (NSIC)
- Jammu & Kashmir Development Finance Corporation Ltd
- Tamil Nadu Industrial Investment Corporation Ltd.
- Export Import Bank of India
- Andhra Pradesh State Financial Corporation
Member Lending Institutions
The list for Member Lending Institutions stands at 144 currently. This includes:-
- Public Sector Banks
- Private Sector Banks
- Regional Rural Banks
- Foreign/MNC Banks
- Non-Banking Financial Institutions
- Lending Institutions
- Small Finance Banks
- Scheduled Urban Co-operative Banks
FAQs
What is the percentage of credit coverage provided by the scheme?
The scheme offers up to 75% coverage of the credit facility, with specific higher coverage (up to 85% or 80%) for micro-enterprises, women-owned MSMEs, and startups in the North-East Region.
What is the maximum loan amount covered under the scheme?
The scheme covers loans up to Rs. 5 crore for eligible startups, with coverage varying based on the type of loan and entity.
