CREDIT GUARANTEE FUND TRUST FOR SMALL INDUSTRIES (CGTSI) 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 – http://www.cgtsi.org.in. 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 features. 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 borrowers have to approach them with their viable proposals for their credit requirements. The list of MLIs can be seen at CGTSI’s website at www.cgtsi.org.in 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 firstname.lastname@example.org or email@example.com) MEMBER LENDING INSTITUTIONS OF CGTSI SCHEDULED COMMERCIAL BANKS 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. REGIONAL RURAL BANKS 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. OTHER INSTITUTIONS 1. National Small Industries Corporation Ltd. 2. North Eastern Development Finance Corporation Ltd. 3. Small Industries Development Bank of India.