SIDBI arm to guarantee SME loans

Guarantee to be offered to up to 75 per cent of the loans extended to SMEs.

Small and medium-scale industrial unit often faced with the issue of collateral security to support the loans they avail from the banks and lending institutions can now relax as help is available in the form of a guarantee scheme floated by Credit Guarantee Trust Fund for Micro and Small Enterprises (CGTMSE).

The trust, created by the Small Industries Development Bank of India (SIDBI), and the central government, has offered to guarantee up to 75 per cent of the loans extended by banks and institutions to SMEs across the sectors, including information technology.

OS Vinod, chief executive officer of the trust said the units would get guarantee protection for loans up to Rs 50 lakh for a one time fee of 1.5 per cent of the loan amount and a 75 per cent services fee per year.

Vinod said there are 66 member lending institutions (MLIs) including all nationalised banks and development finance bodies, and these are the bodies through which the guarantee scheme is being offered.

All SME and tiny sector loans, where the rate of interest is not more than 3 per cent above the prime lending rate of the banks, are eligible for the guarantee cover, he said.

"The scheme is particularly beneficial to SMEs in the information technology sector where there is little to secure by way of mortgages or hypothecation," Vinod pointed out, adding that first generation entrepreneurs will also be the major beneficiaries.

The scheme will boost the lending appetite of banks and lending institutions as they will feel safe despite the absence of additional security to the money they lend, Vinod added.

Vinod said the scheme was administered online, thereby lending speed and flexibility of operation and faster settlement of claims, in cases of invocation of the guarantees.

He said the trust responds to an invocation proposal within 48 hours and if the claim is prima facie tenable, will pay within 72 hours, 75 per cent of the amount guaranteed to the bank or lending institution.

This, he said, was a major improvement over the earlier guarantee schemes under which the invocation and receipt of the guaranteed amounts was tardy.

Vinod said the trust planned to create a corpus of Rs 2,500 crore, of which Rs 2,000 crore would come from the central government through budgetary provision and the rest from SIDBI would come pro-rata with the government contribution.

The trust has a fund base of Rs 1,584 crore and has so far sanctioned 84,000 proposals with guarantee amounting to Rs 3,200 crore.