Typically, when you think investor, you think of a VC or a PE fund. We do not consider a bank to be an investor into the business, even though banks provide the working capital into all businesses and project funding into most.

This month we speak to OS Vinod, CEO of the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). CGTMSE provides backend guarantees to banks for loans up to Rs 50 lakh, so that small entrepreneurs and startups do not need to provide collateral guarantees.

O S Vinod Credit Guarantee Fund Trust for Micro and Small Enterprises

Can you give us a brief of what CGTMSE is all about?
To make it short, we want that entrepreneurship should be encouraged in the country. We have a large population of youngsters who are looking for jobs; but jobs are not easily available. To create more jobs, we need more businesses; we need more entrepreneurs, many of them in the small and micro sector. But even after 60 years of independence, when you go to a bank and ask for a loan the problem of collateral keeps coming up.

This has been the biggest problem that small and micro entrepreneurs have been facing in the country. Bankers usually look at small and micro enterprises as high risk. So, the government decided to set up a credit guarantee organization that would provide comfort to the bankers in lending to the small and medium sectors.

There is nothing new about credit guarantee. It is not as if we have found some new solution to the problem. Credit guarantee organizations have been around in so many countries. We have a single product whereas there are many variations of this around the world. In the Indian context, it is for the first time that micro and small sectors are been looked at as special focus areas. That is the reason why the government set up this agency.

If you see our performance in the last 7-8 years, we have not even touched one lakh cases. This is a very small number, considering the overall picture of the micro and small sector in the country.

What only less than a lakh entrepreneurs? What is the limiting factor?
We face a unique situation. Unless a loan is given, we can’t cover it. So, we actually need to encourage the bankers to lend to the sector. We also need to see that they lend to the sector without any collateral. These are two very important things.

Bankers take a very cautious approach because of the small size of each deal and the high churn rate, the heightened default probability.

They are also right in a way. If you do not reliable financial statements and credit records, banks take a very cautious stand. Without all these, it is very difficult to assess the reliability. CGTMSE has been set up to reduce the risk in lending to the micro sector.

Like you said, banks need to be encouraged to lend. Is CGTMSE doing anything to encourage that?
If the proposal is otherwise good, banks in the normal case should lend with or without collateral. If the proposal is not so good also, banks may lend for various reasons.

What we are trying to tell the banks is -- you don’t appraise the collateral but the project. If the project is good, and then the second issue of collateral comes in and we will step in. So, banks have to move from collateral-based lending to project-based lending, which was not happening. Now, it is happening, but in a very small way. Secondly, in banks, in lending, there are issues in terms of accountability. Whether there is collateral or no collateral, if any loan goes bad, there are accountability issues. So, many managers are very right in saying, why get into all these hassles? Don’t lend and you won’t get into any problems. That is another way of playing safe.

But in the last couple of years, we are seeing a shift in the bank’s perception. If you see our own experience, out of one lakh cases that we did, more than 75% were done in the last 2-3 years. This year, in the first quarter itself, we have done about 12,000 cases. I think there is gradual shift taking place. But like I said, in this country, whatever you do, it is like a drop in the ocean. One can never get the feel that you have done enough.

Just a hypothetical question, you said you have done about a lakh cases so far. If you were to fully utilize your capabilities how many cases can you guarantee?
You want us to do ten lakhs? More? We can do that!

Right now, we have about Rs 1,900-2,000 crore available with us. If we were to leverage this, say by five times, we can easily guarantee loans of about Rs 10,000 crore. And this is a very conservative estimate.

There are guarantee organizations abroad, which have been leveraging much more like for example in Germany, where the leveraging is 25-26 times. There the banking systems are far more sophisticated. Our committed corpus is Rs 2,500 crore (2000 crore from the government and 500 crore from SIDBI). If you take five times leveraging, we can do about Rs 12,500 crore of guarantees as on date.

We have in place the technology to support us and we are quite confident of our ability to scaling up. But, we are dependent on the bankers. This is a demand-driven scheme. The more the bankers demand, the more we give.

Comments (17)

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Not interested Money Lender Institutions but still your Member?
written by Subodh S. Ingle, June 25, 2010

Dear Sir
I am young entrepreneur wanted to start own food processing unit under CGTSME Scheme. for that required every ting I had fulfill and submitted the proposal financial institution members, firstly they don't have any idea or knowledge about this scheme when all the information submitted by me after that they are not ready to take proposal just because of I am applying with your CGTMSE Scheme. They gives me a advice submitted proposal is very viable and strong do one thing just arrange colletral we are ready to give you working capital on that basis . But they are not ready to accept the said proposal under CGTMSE.I am very disappointed. I would like to inform you that this CGTSME Scheme not applicable by your lending members then why they are still your members? If any person wants to start there project with support of your scheme is there any fault of that entrepreneur. I have not any way to start that project I am very much depend on your scheme. Please do some thing for me so I can develop my project with your support.
Subodh S. Ingle
Director,
Three Leaf Foods Pvt.Ltd
Aurangabad( Maharashtra)

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samples project proposal and project report
written by Darshan Patel, June 11, 2010

we are young Industrial automation product development firm . out products are hitech and new to indian industry . i.e. Machine vision ,image processing .

We need proper guidance for project report . you should publish some sample project reports so that people can prepare case for your loans .

As small firms can not afford to hire professionals to wire project report for the same

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Start-Up Funding Required for Infrastructure Developments
written by MANISH KUMAR, April 04, 2010

I m 1st generation entrepreneur,working on unique infrastructure plan for small towns and big villages. Is CGTMSE provide funding for these sectors and any other institution who works on same.

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Start-Up Funding Required for Product Based Accounting Softwares
written by Mr. Supriya Dutta, February 03, 2010

Dear Sir,
I’m a marketing professional and is looking for product based software development funding. There are 4 members in my team consisting of my childhood friend who is an aspirant Chartered Accountant, two software developers and myself an M.B.A and having 4 years of Sales & Operations Experience in Telecom and Financial Industry respectively in the profile of Channel Management and Relationship Management. We’re seeking funding for accounting based software development and setting up PAN India Distributor set-up for the same. Please contact me in case if you find this proposal interesting and lucrative.

Warm Regards,
Mr. Supriya Dutta,
Kolkata, India,
(M) +919874545880,
E-Mail:- duttasupriyo@yahoo.com

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MANAGING DIRECTOR
written by Ram Singh, July 23, 2009

Looking forward to availing this scheme

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...
written by Rajesh Jakhotya, June 11, 2009

what are the rates and charges for availing of this facility?

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...
written by Rajesh Jakhotya, June 11, 2009

What are the charges for availing this schemes? further who has to bear the charges whether banks or the borrower? if Borrower then the ultimate lending cost will increase for the sme borrower? isnt it? please clarify

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Proprietor
written by Venkatesh Murthy, May 31, 2009

I'm a first generation enterprenuer having been in bussiness for the last 3 years & have achieved a sizeable turnover of 30L during the last year.
Although CGTMSE has issued clear guide lines on the elgibility criteria, the lending institution is holding up processing the project proposals sighting reasons as technical issues.If the borrower has a home loan with an other bank which was taken earlier to the date of setting up of bussiness still active / clean standard account & the same is being treated as technical issue ( Multi banking )
It would be fair not to link home loans to bussiness credits.
What are the options for the borrower to avail working capital under CGTSME scheme.

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a boost to entrepreneurs
written by Suresh Sevelar, April 17, 2009

Thanks for sharing the availiabiklity of such trusts that can help first generation entrepreneurs in particular like me.I am considering into venturing a new business and was concerned on the bank collaterals and now have the knowledge of CGFTSME.
Thanks for the info.
Suresh

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CMD
written by Dr. Madhu Gupta, February 10, 2009

We find all schemes are good & helpful if implementation is proper and knowledge about the schemes. please think about those industries came under npa and sick revival will give a new path to meltdown

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Seek help for CGTMSE
written by Saikat Das, January 05, 2009

I have approched many banks in Kolkata for CGTMSE. Everybody said Software company is not eligable for this scheme. What I have found that maximum bank managers here are not aware of this scheme. As there is no office of CGTMSE I am helpless when bank refused me to say there is no help to grow my small business which in 1 st year with my own money I made it a 26L turnover company. Any body here to help me??

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Re: Bank does not know about this
written by Krishna Kumar, December 11, 2008

Hi Syed, Mathews

One of the problems that the scheme faces is that many bankers themselves are not aware of this facility or the fact that their bank is a member of the scheme.

The full scheme is available at http://cgtmse.in/jsp/HomePage/CGTSIScheme.htm.

You could bring it to the attention of your bank manager

The eligibility criteria is available at http://cgtmse.in/jsp/HomePage/...aFrame.htm

Also see FAQ at http://cgtmse.in/jsp/HomePage/faq_finalFrame.htm

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CGFTMSE
written by Mathews.T.A., December 11, 2008

I have never heard of such a facility offered by Govt of India either through news bulletings or any media. Now let me know as to how I can avail of this facility to take credit without collateral. Whom should I approach. Is there any website giving details of the procedure ?

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CGTMSE
written by Mathews.T.A., December 11, 2008

Read the interview but I never heard of such things either through news bulletins on any media. I think even most of the banks in India are also not aware of such a credit facility. Now I would like to know as to HOW I CAN AVAIL A CREDIT FACILITY WITHOUT COLLATERAL. I am an exporter of light eigineering products. Please HELP.

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Good insight even to the bankers.
written by Budh Parkash, November 27, 2008

The article / interview gives a good insight even to a banker about the whole philosophy of guaranttee mechanism. Increased awareness at all levels will increase the coverage in times to come as 95% of units is yet to be linked to the institutional credit in India.

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CGTMSE - unfamilier with the
written by Syed, November 18, 2008

Dear Sir,
Thanks for posting this valuable information from CGTMSE, it is really helpful for all first-generation entrepreneurs, who do not have proper source to raise the money. After reading information about CGTMSE, we have approached an Indian Overseas Bank's bank manager, who claimed that he doesn't know anything about such scheme by CGTMSE.

Is there any specific bank, that we should approach?

Thanks
Syed
1RupeeMatrimony.com

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economic empowerment / development of women groups
written by P.RATHAKRISHNAN, September 22, 2008

we, do service to the poor people in our target area by means of organising self help groups among women. so far we have formed more than 400 SHGs. each group has been link with bank and getting Revolving Funds. and repaying 100%. they are seeking more economic assistance for their independent development. hence, we seek financial assistance on micro credit from your end. and requesting the possibilities.

thanking you,

yours truly
P.RATHAKRISHNAN
EXECUTIVE SECRETARY - EARTH TRUST.

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