Credit Guarantee Fund Trust has been set-up since May 2000 by the Government of India and SIDBI with a contribution of Rs. 125.00 crores in the ratio of 4:1 to be raised to Rs. 2500 crores depending on the requirement. Inability to provide adequate collateral security to lenders has been the basic problem facing the small scale enterprises, especially, the first generation ones.
The CGFTS is a significant step towards making available collateral free credit to the SSI section by guaranteeing 75 per cent of the credit risk of eligible rendering Bank/Institution which are referred to as Member Lending Institution (MLI).
The scheme has low cap of Rs. 25 lakhs and guarantee cap of Rs. 18.75 lakhs per borrower. Rehabilitation assistance for a sick unit is also covered under the scheme, provided the overall assistance is within the credit cap.
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The lender covers the eligible credit facilities within 90 days from the date of sanction of credit facility. Guarantee commences from the date of payment of guarantee fee (a onetime fee of 2.5 per cent of the credit facilities sanctioned) and runs through the agreed tenure of term credit in case of term loan/composite loan and for a period 5 years when working capital facilities alone are extended to borrower.
Since the implementation of the scheme, a major share of units (57 per cent) have availed of loan below Rs. 50,000/- while 38 per cent of units availed loan of over Rs. 50,000/- and below Rs. 1.00 lakh.
The State-wise sanction of approvals under the credit guarantee scheme shows that the largest number of proposals up to 2001 was from U.R (515) followed by Madhya Pradesh (1 22). These two States by far accounted for 50 per cent of the total number of approvals in the country. However, in terms the amount of credit, Tamilnadu ranked second (after UP) with Rs. 140.06 lakhs credit compared to Rs. 225.46 lakhs in UP.