MSME Schemes
CGTMSE and Collateral-Free Credit Support Explained
What the guarantee scheme does for the lender, and what it does not do for the borrower.
The Credit Guarantee Fund Trust for Micro and Small Enterprises provides guarantee cover to lenders on eligible credit facilities extended to micro and small enterprises without third-party collateral. It is one of the most misunderstood schemes in MSME finance, usually because it is described as a collateral-free loan scheme.
What it does
If an eligible borrower defaults, the Trust pays the lender a portion of the loss, up to the scheme's coverage percentage for that borrower category and loan size, within a ceiling. The lender pays an annual guarantee fee, which it usually passes to the borrower.
What it does not do
It does not sanction loans. The lender appraises the borrower and the project as it would for any loan. It does not oblige the lender to lend without collateral; it allows the lender to do so. It does not cover every facility or every borrower; eligibility rules and exclusions apply.
How it is used well
A promoter whose project is sound but whose collateral is thin presents a complete file to a lender that actively uses the scheme, with Udyam registration in place and the project sized within the scheme's ceiling. The guarantee cover then removes the lender's main objection.
Current terms
Coverage percentages, ceilings and fees are revised periodically. We check the current circular for each case rather than quoting figures that may have changed.
Official references
Official portals and notifications are the authority on current conditions. Links are provided for reference and may change.
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