The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) was established jointly by the Ministry of Micro, Small, and Medium Enterprises (MSME), the Government of India. The Small Industries Development Bank of India (SIDBI) facilitates the flow of institutional credit to Micro and Small Enterprises (MSEs). The Credit Guarantee Scheme (CGS) was established to improve the credit delivery system. Apart from unsecured loans from private banks and NBFCs, one solution is the Credit guarantee fund trust scheme for micro, small, and medium-sized enterprises and students. Borrowers are eligible for loans from lenders under the Credit Guarantee Scheme for Education Loans (CGFSEL) without pledging any security or giving any third-party guarantee. Let’s dig deeper into the scheme and its associated terms and conditions.
What is the Credit Guarantee Fund Scheme for Education Loans?
The Government of India launched the Credit Guarantee Scheme for Education Loan (CGFSEL) in 2015. Under the Indian Banks’ Association’s Model Education Loan Scheme, this initiative was introduced to guarantee education loans to students from economically disadvantaged backgrounds (IBA). This programme is designed for student borrowers who are unable to pledge collateral for their loan and cannot provide a third-party guarantee.
The credit risk guarantee fund scheme guarantees education loans made by banks under the Indian Banks’ Association’s Model Education Loan Scheme. Under this scheme, a student can obtain a 7.5 lakh INR collateral-free loan with no third-party guarantee.
What Are The Requirements For The Credit Guarantee Fund Scheme?
To qualify for an education loan through the Credit Guarantee Scheme, students must meet a few criteria. These prerequisites are as follows:
- The student must be from the EWS (Economically Weaker Section).
- The family’s annual income should be less than INR 4.50 lakhs.
- The student must have been accepted to a recognised university in India or abroad. After completing Class XII, they should have been accepted into an approved technical or professional course.
Features Of The Credit Guarantee Fund Scheme
Some prominent features of the CGTMSE loan are as follows:
- The CGTMSE for Education Loans offers a guarantee for deserving and eligible students’ education loans. The guarantee is valid for loans up to INR 7.5 lakh.
- After meeting the CGTMSE scheme eligibility, eligible students will receive a loan subsidy of up to INR 7.5 lakhs. Even if the total loan amount surpasses INR 7.5 lakhs, they are still eligible for a 7.5 lakh subsidy.
- The subsidy is only valid during the course and moratorium periods.
- A student can only receive the subsidy once in their lifetime, either for their first Bachelor’s degree or for a Postgraduate degree. It should also be noted that the subsidy is only applicable to courses in India.
- The student must provide proof of income. For this proof, a knowledgeable authority appointed by the State Government should be contacted.
- Under the Credit Guarantee Scheme, the lending institution can charge 2% per year above the base rate on education loans.
- On CGTMSE scheme education loans of up to INR 4 lakhs, the lender cannot charge any margin money. For loan amounts greater than INR 4 lakh but less than INR 7.5 lakh, the lender may charge 5% as margin money for studying in India. They can charge a 15% margin for studying abroad.
Which Loans Are Covered Under The Scheme?
The Credit Guarantee Scheme for Education Loans covers the following types of loans:
- All education loans made to qualified candidates without collateral or third-party guarantee by lenders participating in the Indian Banking Association (IBA) scheme will be covered by the Credit Guarantee Fund Scheme. The loan should be in accordance with NCGTC (National Credit Guarantee Trustee Company) guidelines and should adhere to all NCGTC procedures.
- The Credit Guarantee Scheme for Education Loans will provide guarantee coverage for a list of approved institutes/courses.
- An education loan that is disbursed quarterly and paid off before the end of the next quarter is eligible for the guarantee cover offered by banks such as SBI, Bank of Baroda, Axis Bank, and others.
Which Loans Will Not Be Covered Under The Scheme?
The CGTMSE loan does not cover the following types of loans:
- Bank loans with interest rates that are more than 2% higher than the bank’s base rate.
- Loans that do not adhere to the RBI’s or the Central Government’s guidelines, laws, provisions, and instructions.
- A loan in which the risk is already covered in some way by the government or another authority.
- Apply for the Credit Guarantee Scheme for Education Loans now that you know everything there is to know about it.
As soon as the eligible credit facilities are sanctioned, the lender should cover them. In any case, the lender should apply for guarantee cover for eligible credits sanctioned in one calendar quarter no later than the end of the following calendar quarter. The guarantee will begin on the date of payment of the guarantee fee and will continue for the agreed tenure of the term credit in the case of term loans / composite loans and for a period of 5 years where working capital facilities alone are extended to borrowers, or for such period as the Guarantee Trust may specify in this regard.
FAQs
1.What is a Credit Guarantee Scheme?
The Government of India established the Loans Guarantee Fund Scheme for Micro and Small Enterprises (CGMSE) to provide collateral-free credit to the micro- and small-enterprise sectors. Existing and new businesses can apply to have their operations covered by the programme.
2.Who are eligible for CGTMSE?
The scheme is open to MSME units such as sole proprietorships, LLPs, partnerships, private limited companies, and registered companies.
3.What is the Credit Guarantee Scheme limit?
Under the guarantee plan, credit facilities up to Rs. 200 lakh per qualified borrower are covered if they are granted on the basis of project feasibility without the use of collateral security or third-party guarantees.
4.Do you have to pay the CGTMSE fee each year?
It is true that after filing a claim and up until the first payment of 75% of the insured amount is settled, an Annual Service Fee (AGF) must be paid.
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