Catalysing growth in Small Scale Sector in India
Loans to small-scale sector can create big opportunities. Industrial sector acts as a pump-primer for economic
development in majority of the developed and developing nations and India is no exception. SSI sector is an important
segment of the Indian economy accounting for around 95 per cent of the industrial units in the country. The
predominant position of SSI sector in Indian economy may be assessed from the fact that it contributes around 40
percent towards the manufacturing sector output, 36 per cent of country’s direct exports and provides employment to
millions of persons. The sustained growth of SSI sector in the post-independence period has been made possible by the
special attention bestowed by the policy makers. This has helped in balanced regional development, augmenting per
capita income, employment generation and raising standards of living of the rural population.

With a view to resolving the problem of collaterals, and to induce banks to gradually move away from a completely risk-
averse stance towards SSIs, the Ministry of Small Scale Industry, Government of India and the Small Industries
Development Bank of India (SIDBI) took the initiative of designing the guaranteeing mechanism for ensuring collateral
security free loans to Small Entrepreneurs, SSIs and Tiny Units. Thus, Credit Guarantee Fund Scheme for small
industries was formally launched in August 2000.

The prime objective of CGTSI is to facilitate the flow of collateral free credit to the SSI sector and encourage lenders to
shift from collateral based or security oriented lending to project based lending. CGTSI has been trying to achieve this
objective by extending guarantees to the Commercial Banks / Institutions, referred to as Member Lending Institutions
(MLIs), sanction credit to eligible borrowers based on the viability of the projects and seek guarantee cover from CGTSI
against payment of one time guarantee fee and annual service charges. CGTSI guarantees upto 75% of the credit risk
subject to loan cap of Rs. 25 lakh and guarantee cap of Rs. 18.75 lakh per borrower.

CGTSI has taken several lessons from schemes of similar nature and made it a point to take care of the drawbacks while
formulating the new scheme. The MLIs have been empowered under the new scheme to have real time information
about the applications submitted by them to CGTSI. The B2B portal has eliminated paper work involved in the process
of receiving applications and approving them for coverage. Against the backdrop of cross country and own experiences,
while designing the structure and operational framework of CGTSI, important aspects like building a bigger corpus,
eligibility of lenders with better financial standing, transparency and ease in transactions using technology, control
systems, reporting systems, etc. have been addressed for avoiding the problems faced earlier right from conception.
CGTSI commenced its operations with an initial corpus fund of Rs. 125 crore received from GOI and SIDBI, the
settlers to the Trust, in the ratio of 4:1.

The Corpus fund has since been enhanced to Rs. 667 crore and the Settlers have committed to enhance the corpus fund
to Rs. 2500 crore over a period of five years.

CGTSI operates under the guidance and supervision of a Board of Trustees of which the CMD of SIDBI is the
Chairman, the Development Commissioner (Small Scale Industry) and Additional Secretary in the Ministry of SSI is the
Vice-Chairman. The Chairman of Indian Banks’ Association, is a Member. The day-to-day affairs are managed by the
Chief Executive Officer, who is also the Member Secretary, along with this team. CGTSI in association with IBA and
banks has set up a review forum to resolve any issues pertaining to CGTSI and Banks relationship.

Mutual Credit Guarantee Scheme

The Ministry of SSI has appointed CGTSI as nodal agency, for launching the Mutual Credit Guarantee Scheme (MCGS)
on a pilot-scale in India. The MCGS was made known to the banks through IBA, and prominent Industries
Associations. The Association of Lady Entrepreneurs of Andhra Pradesh (ALEAP) evinced interest in MCGS and took
initiative in creating its Mutual Credit Guarantee Fund (MCGF) under the aegis of ALEAP Credit Guarantee
Association (ACGA). It has got the approval of 5 lead banks to act as dedicated bankers. A tripartite agreement is
proposed to be entered into by ACGA, the dedicated bankers and CGTSI. Meanwhile, an MoU was signed on
December 18, 2003 at Hyderabad to take the initiative forward. After the agreement is signed, ALEAP’s MCGF will
start operating. CGTSI will extend the counter-guarantee to the proposals guaranteed by ACGA. On implementation of
pilot programme under Mutual Credit Guarantee Scheme through ALEAP, other industry associations will be invited to
replicate the activity for their member units.
For IT Sector

With a view to helping banks in evaluating IT / Software related projects are make available enhanced credit flow to
deserving projects, CGTSI approached Association of Small & Medium Electronics & Information Industries (ASMEII)
to arrange and make available consultancy / expertise to banks in assessing IT-related projects. The proposal was also
sent to select banks inviting them to participate in the endeavour. Central Bank of India and State Bank of India
responded favourably and have agreed to extend finance to SSI entrepreneurs in Information Technology with active co-
operation of ASMII. The proposals sanctioned by the banks under this agreement would be covered by CGTSI. To start
with, this arrangement will be for IT units in known clusters viz. Bangalore, Chennai, Gurgaon, Hyderabad, New Delhi
/ Noida, and Pune.

Convenience of Web Based Operations
Credit Guarantee Fund Trust for Small Industries

Operations of CGTSI are carried out through its dynamic website – Each of the designated
offices (Operating Offices) of the Member Lending Institutions (MLIs) is allotted a Member ID, User ID and Password
to enable them to work online. The Operating Offices can perform, amongst others, the following activities : send
proposals to CGTSI, view the Demand Advices, Pending Application Remarks, Rejected Application Details and any
other communication from CGTSI in the Inbox, generate Status based Application Report, Payment Report, etc. on the
home page of the website, some useful links are available viz. Link to Circulars issued from time to time by CGTSI, the
Member Lending Institutions (MLIs) and addresses of their Operating Offices through "Member Lending Institutions"
link. CGTSI has made available a customised software – "Thinclient" to MLIs and their Operating Offices. Using this
software, Operating Offices can enter data offline and upload to CGTSI website. Alternatively, the data can be exported
to a floppy disk and can be sent to CGTSI.

CGTSI has also developed a software – "Service Fee Calculator" to help MLIs in calculating the annual service fee
payable by them to CGTSI in respect of applications under guarantee cover and upload the data to CGTSI server. This
software is available for download/use on the website.

CGTSI is keen to make increasing use of technology to reach out and serve the small-scale units more
efficiently through its MLIs. It will continue to strive to upgrade its website to make it more dynamic with new

Some Questions & Answers on CGTSI
Q. Which are considered as eligible lending institutions under the Scheme ?

A. All Scheduled Commercial Banks (either PSU, Private or Foreign Banks), Regional Rural
Banks (categorised under "Sustainable Viability"), or such of those institutions as may be
directed by GOI can avail of guarantee cover in respect of their eligible credit facilities under
the Scheme. National Small Industries Corporation Ltd (NSIC), North Eastern Development
Finance Corporation Ltd. (NEDFi) and Small Industries Development Bank of India (SIDBI)
have been included as eligible institutions.

Q. Can credit facility of over Rs. 25 lakh be covered under the Scheme ?

A. Yes, provided that the entire credit facility is extended without any collateral security and
it is otherwise eligible for a guarantee cover under the Scheme. The guarantee Cover
available will be restricted to credit of Rs. 25 lakh even though credit extended is more than
Rs. 25 lakh to an eligible borrower.

Q. How are primary security and collateral security treated for the purpose of
coverage under CGTSI?

A. Primary security is the asset created out of the credit facility extended to the borrower
and / or which are directly associated with the business / project of the borrower for which
the credit facility has been extended. Collateral security is any other security offered for the
said loan. For example, hypothecation of jewellery, mortgage of house etc.

Q. Under the Scheme third party guarantee is not permissible. What is the third
party guarantee ?

A. Personal guarantee of the promoters, partners etc. is not a third party guarantee.
Whereas if a borrower is asked to furnish guarantee of any other person / corporate not
connected with the project, it would be considered as third party guarantee.

Q. Can borrowers approach the Trust directly to seek guarantee ?
A. CGTSI gives guarantee to its Member Lending Institutions (MLIs), therefore, the
have to approach them with their viable proposals for their credit requirements. The list of
MLIs can be seen at CGTSI’s website at

Q. What is the impact of guarantee and annual service free on the cost of
borrowing ?

A. For a credit facility having a tenure of 5 years the incidence of guarantee and annual
service fee for CGTSI cover works out to less than 1.3%. Also if the hassles of creation of
security, its maintenance and insurance, etc. are also taken into account then the overall
impact is even lesser.
(Mail queries to either or


1. Allahabad Bank 2. Andhra Bank 3. Bank of Baroda 4. Bank of India 5. Bank of Maharashtra 6. Canara Bank 7. Central
Bank of India 8. Corporation Bank 9. Dena Bank 10. Global Trust Bank Ltd. 11. HDFC Bank Ltd. 12. ICICI Bank Ltd.
13. IDBI Bank Ltd. 14. Indian Bank 15. Indian Overseas Bank 16. IndusInd Bank Ltd. 17. Oriental Bank of Commerce
18. Punjab & Sind Bank 19. Punjab National Bank 20. State Bank of India 21. State Bank of Bikaner & Jaipur 22. State
Bank of Hyderabad 23. State Bank of Indore 24. State Bank of Mysore 25. State Bank of Patiala 26. State Bank of
Travancore 27 Syndicate Bank 28. The Bank of Rajasthan Ltd. 29. The South Indian Bank Ltd. 30. The United Western
Bank Ltd. 32. UCO Bank 32. Union Bank of India 33. United Bank of India 34. UTI Bank Ltd. 35. Viajaya Bank.


1. Prathama Bank, Moradabad, UP. 2. Sabarkantha – Gandhinagar Gramin Bank, Gujarat 3. Sri Saraswathi Grameen
Bank, AP 4. Howrah Grameen Bank, WB 5. Godavari Grameen Bank, AP.


1. National Small Industries Corporation Ltd. 2. North Eastern Development Finance Corporation Ltd. 3. Small
Industries Development Bank of India.

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