Credit Guarantee Fund Scheme For Micro & Small Enterprises in Bhopal, Madhya Pradesh – Meaning, Features, Pre-requisites, Benefits, Duration, Process

A bankable business idea remains a mere idea without the necessary guidance and funds. It’s a known fact that Bhopal, Madhya Pradesh is growing large in terms of economic development and business entrepreneurship, witnessing more than six crores of micro and small enterprises under the organized as well as unorganized sectors. Micro, Small, and Medium Enterprises hold an immense contribution to the socio-economic development of the country.

For years, MSMEs have played a key role in the economic upliftment of the economy by creating wealth, bringing foreign reserves to the nation, and creating employment opportunities all over the country. Till today, they account for at least 30-40% of GDP and around 48% of total exports and support bigger corporations by supplying raw materials and related goods to them. Micro, Small, and Medium Enterprises Development Act, 2006 introduce and defines micro, small and medium enterprise businesses according to their annual turnover and investments in the plant & pieces of machinery in the business.

However, the most challenging aspect faced by the MSMEs in Bhopal, Madhya Pradesh is to meet competition against competitors in the relevant market with limited resources, which affects their organizations as well as their developmental growth. Be it the requirement of working capital, purchase of assets or pieces of equipment, advertisement or promotion-related costs, or labor costs, MSMEs need funds for various purposes which couldn’t be fulfilled through savings only. This problem is even worse in the case of first-generation entrepreneurs who have little idea about the sources of raising or seeking funds and the manner of doing the same.

Usually, the first thing that comes into mind is business loans, but it is often difficult to avail of business loans when the start-ups are at a nascent stage due to the higher perceived risk amongst banks in lending to MSEs. Therefore, realizing the need to develop a strong stimulus to MSMEs to ensure there is the adequacy of liquidity maintained in the business operations of government and financial institutions, the Government of India has introduced as many as 50 schemes with various objectives to ensure seamless flow of credit delivery to MSMEs, one of which is the Credit Guarantee Scheme. The article mentioned below describes all the meaning & objectives, benefits, eligibility, and fiscal incentives extended to MSEs under the scheme in Bhopal, Madhya Pradesh.

What is the Credit Guarantee Fund Scheme in Bhopal, Madhya Pradesh?

As part of the Start-up India action plan in 2017, this scheme was reformed under the mutual efforts of the Ministry of MSME, Govt. of India with the Small Industries Development Bank of India (SIDBI) under the administration of the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). For effective implementation of the schema Credit Guarantee Fund Trust has been created under which the Government and SIDBI contribute in the ratio of 4:1 for the corpus of the fund.

The CGFS scheme was launched with the purpose to strengthen the credit delivery system and smoothening the flow of credit to the MSE through the access of funds to the unserved, under-served and underprivileged to help the movement of funds from conventional lenders to new generation entrepreneurs. The CGS scheme has been instrumental in affording guarantee covers to collateral and/or third-party guarantee-free credit facilities extended by eligible Member Lending Institution (MLIs) to MSEs.

Credit Guarantee Fund Scheme For Micro & Small Enterprises in Madhya Pradesh

Located in Central India, Madhya Pradesh is the second-largest state in terms of area and 5th largest state in terms of population. Madhya Pradesh shares its borders with Uttar Pradesh, Chhattisgarh, Gujarat, Rajasthan, and Maharashtra. Till 2000 Madhya Pradesh used to be the largest city in India in terms of area, but in the year 2000, Chhattisgarh was carved out and designated as a separate state, making it the second-largest state after Rajasthan. Madhya Pradesh has the 10th largest economy in India, and it ranks 23rd among the states in the State Human Development Index. The state is rich in mineral resources and has India’s largest diamond and copper reserves.
The primary source of income in Madhya Pradesh is agriculture, meaning the state has an agrarian economy. The state’s major crops are soybean, wheat, gram, maize, rice, sugarcane, cotton, rapeseed, mustard, and arhar. Madhya Pradesh consists of five Special Economic Zones (SEZs), of which three are IT-related, mineral-based, and agro-based. For doing excellent work in Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) 2005, Madhya Pradesh has won the 10th National Award.
Capital- Bhopal

Business ideas in Madhya Pradesh
Madhya Pradesh is the second most preferred state for the corporate and industrial business after Gujarat. If you want to set up a small business that needs low investment in Madhya Pradesh, then here are a few ideas: –

Food processing business
Madhya Pradesh is an agrarian state with wheat, soybean, gram, sugarcane, rice, maize, mustard, etc., the major crops in the state. Setting up a food processing business in Madhya Pradesh is a good idea as it is an agrarian state. People cannot consume raw food, so it needs to be processed for consumers’ consumption. The food processing business requires considerable investment but will raise huge profits. Being an agricultural state Madhya Pradesh is an ideal state for the food processing business.

Minerals related business
Madhya Pradesh has a unique geographical location as it is centrally located and shares the border with six states with rich mineral resources. Madhya Pradesh is a mineral-rich state with tremendous potential for various mineral-related businesses. Depending on the capital that you have for the investment, you can start any minerals-related business in Madhya Pradesh. It is counted among the states with diamond mines, so you can also establish a diamond cutting and polishing business in Madhya Pradesh. Mineral-related business requires moderate investment depending on what kind of business you are choosing.

Agro-related business
Being the fourth-largest producer of agricultural products in India, Maharashtra is perfect for establishing an agro-related business. Madhya Pradesh ranks first in soybean, gram oil, seeds, pulses millets, and linseed production. Agriculture is one of the top contributors to the state’s economy, and 74% of the population is directly or indirectly dependent on agriculture. So raw materials required for agriculture-related business will be locally available to you in the state. Some agri-related businesses you can start in Madhya Pradesh are fertilizers, organic farming, organic grocery stores, orange farming, etc. This business will require low investment, and you must give a lot of energy and effort in the initial years of establishing the business.

Tourist agency
Madhya Pradesh has four UNESCO World Heritage sites that attract tourists around the globe. The state has many forts, palaces, archaeological sites, stupas, monuments, etc., so setting up tourism-related businesses like restaurants, tourist agencies, and transport businesses will help you make huge profits. The best part about the tourism-related business is that it needs low investment.

Cement business
Setting up a cement industry in Madhya Pradesh is a profitable business idea as the state is the third-largest cement producer in India. It is known for the rich cement-producing minerals, so the raw materials required for establishing a cement manufacturing plant will be locally available in the state. Prominent groups like Vikram cement, Prism Cement, Diamond cement, Birla Corporation, ACC Cement, and Mahiar cement have established their manufacturing plants in Madhya Pradesh.

Textile business
Known for the production of Chanderi and Maheshwari sarees, Madhya Pradesh is famous for textiles. The textiles, especially the handicraft produced in Madhya Pradesh, reflect the state’s rich culture and tradition. Again, the raw materials that are needed for the production of textiles are locally available. Textile business in Madhya Pradesh needs reasonable investments and a lot of effort.

The startup ecosystem of Madhya Pradesh
According to the state startup ranking 2019, Madhya Pradesh is entitled as the emerging startup ecosystem. Madhya Pradesh is called the heart of India and attracts a lot of investment in diverse sectors like engineering electronics systems, information technology, design, and manufacturing. In 2016 the state government of Madhya Pradesh outlined the startup policy with a vision to encourage entrepreneurial spirit and innovation among the state’s youth. This startup policy of Madhya Pradesh is known as the ‘Madhya Pradesh incubation and startup policy.’ The policy was formulated under the department of Micro Small and Medium Enterprises (MSME) and was updated in 2019. Following are the objectives of the Madhya Pradesh startup policy: –
The Madhya Pradesh startup policy vision is to strengthen the startup culture by inculcating and nurturing entrepreneurial skills in the people.
The motto of the policy is to encourage and inspire youth to develop innovative ideas to build a strong startup ecosystem.
By outlining the startup policy, the state government of Madhya Pradesh wants to promote entrepreneurship activities, particularly among the youth, by enabling sustainable and inclusive socio-economic development across the state.
Through the startup policy, the state government of Madhya Pradesh aims to promote and develop employment opportunities, thus eradicating unemployment within the state.
The state vision is to build a robust startup ecosystem by encouraging the setting up of new technology businesses and incubation centers.

How the scheme does work in Bhopal, Madhya Pradesh?

By entering partnerships with over 100 member lending institutions (including scheduled banks, regional rural banks, and cooperative banks), the scheme offers guarantee cover for insufficient or no collateral to businesses in dire need of funds for their business. They benefit the member lending institutions by assuring up to 85 to 90% of repayments in case the borrower MSE defaults on the payments, and on the other hand, support businesses by emphasizing lending institutions to focus more on the viability of the businesses rather than collateral or third-party guarantees.

Not only this, but the CGS scheme has also introduced another scheme to offer financial support to stressed MSEs through guarantee coverage for providing personal loans through banks to promoters of the stressed MSMEs for infusion of equity/quasi-equity/sub-debt in the businesses who are eligible for restructuring as per RBI guidelines, which is known as CGS Sub-Debt Scheme. Here, the proportion of guarantee coverage between CGSTMSE to promoters of stressed MSEs will be 9:1.

Features of the Credit Guarantee Scheme in Bhopal, Madhya Pradesh

      i. The MSE must be recognized as a start-up by the Department of Industrial Policy and Promotion (DIPP) for the purpose of being eligible for the credit guarantee.

      ii. The guarantee covers must be offered based on portfolios and there must be at least 10 start-up loans for any particular financial year.

      iii. The credit guarantee cover so offered may include any other monetary assistance such as Venture capital, working capital, debentures, optionally convertible debt, term loans, etc. up to a sum of Rs. 5 crores to every eligible MSE start-up.

     iv. Credit guarantee offers loans of composite nature which may include unsecured term loans or working capital loans or both.

       v. The loans so offered do not need collateral or a third-party guarantee from the borrower.

     vi.  In case the borrower becomes financially sick during the tenure of the loan, the member lender institution may also offer rehabilitation facilities

      vii.  The minimum guarantee cover is 50% while the Maximum guarantee cover could go up to 85% of the loan amount only.

Eligibility of the CGS Scheme in Bhopal, Madhya Pradesh

      i. All New and existing MSE enterprises engaged in either manufacturing or service activity shall be eligible to avail of this scheme.

      ii. However, businesses engaged in activities such as education, agriculture, Self-help Groups (SHGs), training institutions, etc. shall not be entitled to avail of this scheme.

      iii. Each borrower MSE should have a valid PAN number before availing of a credit facility from the eligible lending institution apart from with no history of default in loan repayments.

      iv. Borrower MSEs shall also be eligible to seek & obtain joint financing (such as term loan from State financial institution and Working capital from a commercial bank), but sharing of securities will not be allowed to start-ups.

      v. In terms of lenders, there are more than 133 eligible banks/financial institutions registered as member lending institutions with CGTMSE.

Pre-requisites of CGSS in Bhopal, Madhya Pradesh

     i. It shall be compulsory for every borrower start-up MSE to complete the KYC process for the following persons in Bhopal, Madhya Pradesh-

        a. For all resident partners or directors – submission of a copy of the Aadhaar

         b. For all non-resident partners or directors – a copy of the passport.

       ii. The management of the National Credit Guarantee Trust Company will administer the functioning of the scheme and set the terms and rules for its functioning as it sees fit.

       iii. A Management Committee shall be formed to monitor the Credit Guarantee Scheme for MSMEs

       iv. A Risk Evaluation Committee shall be constituted to undertake and address issues related to any conflicts of interest that may arise in any case.

Guarantee Cover Fees under the CGSS scheme in Bhopal, Madhya Pradesh

Benefits of the CGS Scheme in Bhopal, Madhya Pradesh

       i. Availability of Guarantee Cover for MSEs in Bhopal, Madhya Pradesh– The primary purpose of the CGS scheme is to offer a seamless credit delivery facility to MSEs by resolving the problem of collateral or guarantee. Thus, availing of this scheme relieves MSEs from arranging collaterals or looking for third-party guarantors to avail business loans for their business.

       ii. Boosts Participation of Women Entrepreneurs in Business Industry in Bhopal, Madhya Pradesh– For encouraging the participation and contribution of women entrepreneurs in the Indian business ecosystem, the scheme offers special guarantee cover rates (up to 80% of the loan amounts) to MSE units either operated and/or owned by women.

      iii. Reassurance to MLIs in Bhopal, Madhya Pradesh– Generally, banks or financial institutions are reluctant to offer loan facilities to start-ups and MSEs at the early stages of development due to higher risks of business failures or payment defaults by borrowers involved. Therefore, the CGS scheme reassures the MLIs that the Guarantee Trust would make good the loss incurred by the lender up to 50/75/80/85 percent of the credit facility in case of payment defaults by the borrower.

       iv. Ensuring the seamless flow of Credit Delivery in Bhopal, Madhya Pradesh– Since the CGTMSE affords guarantee cover for the borrower MSE, it emphasizes the seamless flow of credit delivery for working capital or other business purposes based on the viability of the profit-making business idea of the start-up MSE.

       v. Encourages a spirit of Entrepreneurship in Bhopal, Madhya Pradesh- CGS is primarily focused on supporting the entrepreneurial zeal of millions of youth who are first-generation entrepreneurs having bankable business ideas by helping them to set their viable micro and small enterprises, ultimately making them job providers from job seekers.

       vi. Financial support to stressed MSEs in Bhopal, Madhya Pradesh– Finally, the CGS scheme for financially stressed MSEs is aimed at helping in the restructuring of the business unit through a guarantee covering up to 90% of such MSEs.

Fiscal Incentives in Bhopal, Madhya Pradesh

Under the scheme, all new and existing micro and small units will be eligible to avail of loans with any collateral/third party guarantee free credit facility (including both fund and non-fund based) facilities including Service Enterprises with a maximum limit of Rs. 2 crores per unit for term loans and/or working capital loan facilities. Lately, the CGSS scheme has also extended guarantee coverage facilities to certain NBFCs and Small Finance Banks.

The guarantee cover available under the scheme will be available to the extent of (50% or 75% or 80% or 85%) of the approved amount of the credit facility.  However, in case any default is committed by the borrower MSE, then the CGSTMSE will settle the claim with up to 75% of the amount in default of the credit facility extended by the lending institution for credit facilities up to 2Crores. The applicable fiscal interventions have been provided below-

Duration for Repayment with Moratorium Period for CGS

The credit guarantee will begin from the date of the payment of the guarantee fee by the borrower MSE till the agreed term of the credit facilities in case of term loans/composite loans, whereas in the case where only working capital facilities have been availed by the borrower then for five years or such period as may be specified by the CGTMSE in this behalf.

Process of Availing CGS Scheme online in Bhopal, Madhya Pradesh

Provided below is the step-by-step process of availing of the CGS scheme online in Bhopal, Madhya Pradesh-

      i. The first and the foremost step to avail of this scheme is to arrange all important documents, projected financial statements, and properly laid business loans. The business plan should reflect the viability of the project.

      ii. Once, the business model is constructed properly, the MSE unit should carefully choose any bank/financial institution to avail credit facilities from the CGTMSE portal where such lender is a member lending institution.

      iii. Once, it is done an application for a loan along with the business plans is to be submitted. The bank will check the documents and business plans and submit a copy of the same to the CGTMSE if it finds everything is in order and correct.

      iv. On receipt of the application, the CGTMSE will scrutinize the application again and on being satisfied will instruct the bank to release funds for the business.

      v. Upon receipt of approval of the credit facility, the borrower will be required to pay the CGTMSE guarantee and service fee.

Therefore, the CGSF is a beneficial scheme for MSEs and start-ups which relieves the pressure of finding guarantors or arranging collaterals, which is hard for businesses in the initial years. With a track record of approving and providing guarantee covers worth Rs.45,821 crores, the scheme has gained 52% growth in coverage terms of the amount which has led to its significant popularity among MSEs. While expanding its scope to cover segments such as partially collateralized loans, Retail Trade, and uncovered lenders like NBFCs Small Finance Banks, and Scheduled Co-Operative Banks.

With increased awareness, now MSEs looking for credit facilities will approach lenders to avail of loan facilities under the CGS scheme and tackle any financial shortcomings that may come in the way of their business. CGS Features like credit delivery facilities at attractive interest rates, with a guarantee to cover between 75-85 % of the loan amount from more than 133 member lending institutions covering a wide range of business activities, will offer promising prospects to boost entrepreneurship among youth generation making them job providers rather than job seekers and even helping in employment generation prospects for the nation for a developed economy.