Table of contents:
In India, accessing finance for small businesses has long been a challenge. To address this, the government introduced schemes like the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) and the Credit Guarantee Fund for Micro Units (CGFMU), both offering collateral-free loans to support entrepreneurs. While both schemes aim to stimulate growth in the MSME sector, they cater to different business needs and structures.
CGTMSE and CGFMU differ in loan limits, eligibility, and coverage, making it essential for business owners to understand which scheme suits their financial requirements. This guide will break down the key differences between these two schemes, including their features, eligibility criteria, and claim settlement processes.
What is CGTMSE?
The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) was introduced to provide collateral-free credit to micro and small enterprises. This scheme encourages banks and other financial institutions to offer loans to MSMEs without the risk of non-repayment.
To know more about CGTMSE check our blogs on:-
What is CGFMU?
The Credit Guarantee Fund for Micro Units (CGFMU), launched under the Pradhan Mantri Mudra Yojana (PMMY), offers a more targeted approach to micro-enterprises. It ensures that smaller units can access financial support under simplified terms.
Key Aspects of CGFMU:
- Eligibility: This scheme is available to micro units involved in the manufacturing, trading, or service sectors.
- Loan Limits: The maximum loan amount covered under CGFMU is ₹10 lakh.
Objectives of CGFMU:
CGFMU scheme focus is on helping micro businesses, especially those who are unable to obtain funding from traditional channels. The aim is to support smaller businesses by providing them easy access to finance for growth and development.
Key Features of CGFMU
The Credit Guarantee Fund for Micro Units (CGFMU) is designed to cater specifically to micro-enterprises with smaller loan requirements, offering simplified processes and efficient access to credit.
- Collateral-Free Loans: Like CGTMSE, CGFMU provides collateral-free loans, allowing micro-units to borrow without pledging assets, reducing financial risk for small business owners.
- Maximum Loan Amount: The maximum loan available under CGFMU is ₹10 lakh, making it ideal for micro-enterprises with smaller capital needs. As of 2023, the majority of loans disbursed under the scheme have averaged ₹6-7 lakh per borrower.
- Guarantee Coverage: CGFMU guarantees up to 75% of the loan amount, reducing the risk for lenders. For instance, if a borrower takes a loan of ₹10 lakh, ₹7.5 lakh of it is guaranteed by the fund, ensuring better protection for financial institutions.
- Application Process: With a focus on efficiency, CGFMU offers a streamlined application process, leading to faster loan disbursal. On average, loan approvals are completed within 7-10 days, and over 1.5 lakh micro-businesses have benefited from this quicker turn-around time.
Loan Limits Comparison
| Feature | CGTMSE | CGFMU |
| Loan Limit | Up to ₹5 crore | Up to ₹10 lakh |
| Target Businesses | Small enterprises (MSEs) | Micro-units |
| Suitable for | Larger funding needs (working capital, expansion) | Smaller funding needs (start-ups, micro-scale operations) |
| Loan Guarantee | Up to 85% of the loan amount | Up to 75% of the loan amount |
Comparison on Coverage and Guarantee Fees
| Feature | CGTMSE | CGFMU |
| Coverage Percentage | Up to 85% of the loan amount | Up to 75% of the loan amount |
| Maximum Loan Amount | ₹5 crore | ₹10 lakh |
| Guarantee Fee (Loans ≤ ₹5 lakh) | 1.00% of the sanctioned amount per annum | 1.00% of the sanctioned amount per annum |
| Guarantee Fee (Loans > ₹5 lakh) | 1.50% of the sanctioned amount per annum | Not applicable (loan cap is ₹10 lakh) |
| Concessions | Women, SC/ST, and Northeastern entrepreneurs may get a concession of up to 0.75% on guaranteed fees | No specific concessions available |
| Claim Settlement | 75% of the claim settled within 30 days: remainder post recovery process | 75% of the claim settled upfront |
Claim Settlement Process
| Feature | CGTMSE | CGFMU |
| Initial Claim Settlement | 75% of the claim amount is settled within 30 days of submission | 75% of the claim amount is settled upfront |
| Final Claim Settlement | Remaining 25% is settled after completion of recovery process | No additional settlement is needed after initial payment |
| Timeframe for Full Settlement | Full settlement can take several months depending on recovery | Settlement is usually completed within 30 days |
| Ease of Settlement | Requires more documentation and recovery efforts due to higher loan amounts | Simpler process due to smaller loan sizes and micro-unit focus |
| Applicable for Loan Default | Claims are processed if the borrower defaults on loan payments, including working capital and term loans | Applicable in case of loan defaults under micro-unit financing |
Comparison on Eligible Enterprises
CGTMSE:
- Coverage: Targets a wide range of Micro and Small Enterprises (MSEs) in various sectors.
- Eligible Sectors:
- Manufacturing: Small-scale manufacturers producing goods across different industries.
- Service Sector: Includes service providers like small IT firms, consultancies, and repair services.
- Trading Businesses: In specific cases, certain trading businesses are eligible.
- Entrepreneurs:
- Startups and First-Time Entrepreneurs: Startups and businesses in early stages are encouraged to apply.
- Established Small Businesses: Existing small enterprises seeking working capital or term loans.
- Loan Usage:
- Working Capital Loans: Short-term loans for managing day-to-day operations.
- Term Loans: For long-term investments such as purchasing machinery or expanding the business.
CGFMU:
- Target Group: Focuses on micro units and businesses under Pradhan Mantri Mudra Yojana (PMMY).
- Eligible Businesses:
- Micro-Level Enterprises: Small businesses like street vendors, artisans, and individual service providers.
- Trading: Small traders and retailers in the informal sector.
- Manufacturing: Micro-manufacturers involved in low-scale production.
- Service Sector: Includes small service providers like tailors, repair shops, etc.
- Entrepreneurs:
- First-Time Entrepreneurs: Specifically designed for those starting their first business venture.
- Informal Sector Businesses: Targets businesses that traditionally lack access to formal financial systems.
- Loan Purpose: Primarily for micro-businesses looking for smaller loans to start or sustain their operations.
Differences in Application Process
- CGTMSE: Involves a more detailed application process due to the larger loan sizes. Applicants need to provide specific documentation regarding their business operations, revenue, and growth plans.
- CGFMU: Has a simplified process to make it easier for micro-units to apply for loans. The emphasis is on minimal documentation and quick disbursal.
Target Audience for Each Scheme
- CGTMSE: Best suited for small enterprises that require larger amounts of funding to support expansion and operations.
- CGFMU: Ideal for micro-units with smaller funding requirements, offering a quick and hassle-free loan application process.
Recent Updates and Reforms
2023 Updates
CGTMSE:
- April 2023: Reduced guarantee fees for loans up to ₹1 crore to encourage more startups and small enterprises to access the scheme.
- Launched a revamped online application portal, expediting the loan approval process and ensuring 75% of claims are settled within 30 days.
CGFMU:
- Focus on simplifying the loan application process for micro-units under PMMY.
- Average loan approval time reduced to 7 days, enhancing access to funds for micro-businesses.
2024 (Projected Updates)
CGTMSE:
- Planned improvements in digital processing for loan applications and claims, reducing administrative delays.
- Further guarantee fee reductions are expected for women entrepreneurs and specific regions like the North-East.
CGFMU:
- Digital integration updates to enable faster loan disbursement through online platforms, making funds more accessible to micro-enterprises.
- Faster claim settlements for loan defaults, with a goal to resolve claims within 15 days for eligible micro-units.
Conclusion
Understanding the difference between CGTMSE and CGFMU is essential for small business owners seeking financial support. While both schemes provide collateral-free loans, they cater to different types of businesses. CGTMSE is more appropriate for small enterprises requiring larger loan amounts, whereas CGFMU is tailored for micro-units with smaller credit needs. By carefully considering factors like loan limits, coverage, and eligibility, business owners can make informed decisions and access the right financial support for their growth.
Platforms like Tata nexarc can simplify this process further by offering tailored solutions, guidance, and tools to help businesses choose the best financial options for scaling and sustainability.
FAQs
Can startups apply for CGTMSE?
How do claim settlements work under CGFMU?
A product manager with a writer’s heart, Anirban leverages his 6 years of experience to empower MSMEs in the business and technology sectors. His time at Tata nexarc honed his skills in crafting informative content tailored to MSME needs. Whether wielding words for business or developing innovative products for both Tata Nexarc and MSMEs, his passion for clear communication and a deep understanding of their challenges shine through.
