Q.What is the purpose of the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)?

Many otherwise viable small business proposals fail to get bank funding for one specific reason — the entrepreneur has no property or asset to offer as security — and CGTMSE exists to remove exactly that obstacle. …

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) was set up in the year 2000, jointly by the Ministry of MSME, Government of India, and SIDBI. Its purpose responds directly to a very common and specific problem: banks are generally unwilling to sanction a loan to a small enterprise that cannot offer collateral security or bring in a third-party guarantor, even when the underlying business plan is sound.

CGTMSE addresses this by extending a guarantee to the bank, not a loan or grant to the entrepreneur. When an eligible micro or small enterprise borrows from a participating bank under this arrangement, CGTMSE undertakes to cover a defined portion of the loan if the borrower is unable to repay. Because the bank now carries lower risk on that loan, it is willing to sanction it without insisting on collateral security or a third-party guarantee from the entrepreneur. …

Students sometimes describe CGTMSE as a scheme that directly lends money to entrepreneurs; in fact it guarantees loans made by banks — the bank remains the lender. It should also not be confused with …