What is Credit Guarantee Scheme? How is it beneficial for small businesses and traders

Credit Guarantee Scheme: Credit Guarantee Funds for Micro and Small Enterprises (CGTMSE), launched in the year 2000, is a loan offered by the Ministry of Medium, Small and Micro Enterprises (MSME) in collaboration with Small Industries Development Bank of India (SIDBI). This is a government-backed loan scheme for small businesses and traders. It provides credit guarantees to various micro-financial institutions, like small finance banks, and non-banking financial companies, which give loans to MSMEs. Credit Guarantee Scheme (CGS) was launched on August 30, 2000, and became operational with effect from January 1, 2000, to strengthen the credit delivery system. The scheme also aims to facilitate the flow of credit to the MSE sector, and create access to finance for various small- and medium-scale business owners.

The reform in the Credit Guarantee Scheme is part of the government's efforts to strengthen the MSME sector, Prime Minister Narendra Modi said in a statement appreciating the scheme. The Prime Minister said in a tweet, "This is a part of our government's efforts to strengthen the MSME sector." Narayan Rane, Union Minister for Micro, Small, and Medium Enterprises, tweeted that as part of the continuous efforts to strengthen the MSE sector, the Credit Guarantee Scheme has been revamped to increase the flow of credit to MSEs.

This is a part of our Government's efforts to strengthen the MSME sector. https://t.co/EWdEZeNCVA

— Narendra Modi (@narendramodi) April 4, 2023

A bank gives a loan to an applicant under credit guarantee, and the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) takes the guarantee of this loan. The applicant does not need to keep anything as collateral. A major portion of the bank loan amount gets a guarantee covered by the CGTMSE scheme. CGTMSE's new logo, "Colourful Flying Bird," captures the entrepreneurial spirit of millions of Indian youth who have a bankable idea but lack capital. Here, CGTMSE helps them get loans to set up practical micro and small enterprises and also provides them guarantees to contribute meaningfully to nation-building.

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