Credit Guarantee Fund Scheme For Micro & Small Enterprises in Lucknow, Uttar 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 Lucknow, Uttar 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 Lucknow, Uttar 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 Lucknow, Uttar Pradesh.

What is the Credit Guarantee Fund Scheme in Lucknow, Uttar 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 Uttar Pradesh

Located in northern India, Uttar Pradesh is famously known as the Heartland of India. It is because of its rich culture and historical traditions. This state is the most attractive tourist destination for both Indians as well as non-Indians. This state shares its boundaries with Rajasthan in the west, Haryana, Himachal Pradesh, Uttarakhand, and Delhi in the northwest, Bihar in the east, Madhya Pradesh in the south, and feebly touches the states of Jharkhand and Chhattisgarh in the southeast and an international border with Nepal in the north. This is the most populous state in the country and also the most populated country subdivision state in the world. Uttar Pradesh is the 4th largest in terms of the area constituting about 7.3% of the total geographical area of India. As per the demographics, Hinduism is practiced by more than three-fourths of India’s population, the following is Islam the next largest religious group. Though there are many languages spoken in Uttar Pradesh, among them, Hindi is the most widely spoken and officially acknowledged language.
Uttar Pradesh is the home of various pilgrimage sites, historical monuments, spots of various religious faiths, and several Hindu holy temples. Uttar Pradesh has a rich history with untold and known mysteries that is related to ancient times. This is the land where the great sages have taken birth, the world-famous destination of two great epic Battles of India i.e. Ramayana and Mahabharata. It has popular destinations such as Varanasi (the spiritual capital of India), Allahabad (the holy Sangam of two major rivers – Ganga and Yamuna and iconic Kumbh Mela gatherings held once in 12 years), Agra (the epitome of Mughal architectural perfection and is one of the seven wonders of the world- the Taj Mahal), many other exhilarating tourists. These scenic beauties and heritage sites attract the interest of travelers and represent every facet of Indian culture and ethnicity.
In the past few years, the state has experienced substantial economic growth. Agriculture Sector provides the leading occupation to the population of Uttar Pradesh and plays an important role in the economic development of the state. As per the latest report on net state domestic product (NSDP), Uttar Pradesh is the 2nd largest economy in India after Maharashtra. Uttar Pradesh is the 3rd largest contributor to the economy in terms of GSDP (Gross State Domestic Product) about 8.4 percent of India. According to the census of 2014-15 released by the India Brand Equity Foundation (IBEF), Uttar Pradesh has a 19% share of the country’s total food grain output. This state is the noble hub for the Information Technology (IT) industry, software, and electronic industry, media, and financial institutions such as Noida, Kanpur, and Lucknow. As a result, this state attracts most of the foreign direct investment showing interest in the above-mentioned fields.
Capital- Lucknow
Top Business ideas in Uttar Pradesh
As we know, Uttar Pradesh is the fourth largest state in India in terms of area, it is the noble hub of various industries like Information Technology (IT) industry, Software, and Electronics Department. Uttar Pradesh is enriched with various useful products, applicable to boost the overall production and manufacturing efficiency of the state. We are aware of the fact that in the agriculture sector, Uttar Pradesh is an 18.9 percent contributor to the food grain production of the country. In the past few years, this state has witnessed rapid industrialization and sharp advancement in technological assets. According to the survey of the World Bank and KPMG, Uttar Pradesh is in 10th rank among the Indian States on the ease of doing business and 5th rank in accordance with the labor regulations. Given below are the list of business idea in Uttar Pradesh are: –
Battery Reconditioning Business
As Uttar Pradesh is moving towards industrialization, it caters to various semiconductor industries and research & development centers. Hence, It is a service-based business that offers a lot of opportunities. This is best for the small-scale business idea where very less capital investment is required. Battery renovation work is done by replacing the battery parts and adding some Chemicals by using simple methods. Given below the list of procedures for how to start a battery reconditioning business in India –
• Skilled and experienced labor
• Prepare a well-structured business plan for battery reconditioning
• Necessary raw materials and equipment
• Registration of the business
• Selection of a location for the business
Fashion design business
As you all know that Uttar Pradesh is well-known for the handicraft and handloom industry. We have administered that in the past few years Uttar Pradesh has contributed in this field. Hence it is an excellent business idea for cost-effective and scalable production. Specially incorporated by those who have perfect knowledge of fashion and creative design.
Mention below is the list of procedures for how to start a fashion design business in India –
• Gathering of the information related to various fashion industry opportunities
• Prepare a robust and self-explanatory business plan
• Set up and decide the course you want to offer
• Look for the promotion possibilities
Startup Ecosystem in Uttar Pradesh
Uttar Pradesh state is one of the leading and largest contributors in the field of Information Technology, software development, and the electronic sector. This state is also focusing to work collaboratively with the citizen on developing infrastructure, human capital development, and effective policy implementation. This is done to create a productive ecosystem for the entrepreneurs and investors in the state.
From 2017 to 2022, Uttar Pradesh state initiated the Uttar Pradesh information technology and startup policy. It is the flagship policy of the state government to focus on the core objectives to create an environment that will stimulate the growth of investors entrepreneurs and startups. The vision of this policy is to develop a comprehensive socio-economic environment and focus on creating employment promoting entrepreneurship innovation and enhancing the quality standard life in the state. Hence to crater the entire startup ecosystem, the state has come up with an infuse model(Incubators-Fund of funds-Startup Entrepreneurs).
With this vision of empowering innovation and entrepreneurship in the state, the state government has collaborated with various prominent institutions like IIT-Kanpur, IITBHU, IIM-Lucknow (Noida), KNIT Sultanpur.

How the scheme does work in Lucknow, Uttar 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 Lucknow, Uttar 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 Lucknow, Uttar 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 Lucknow, Uttar Pradesh

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

Benefits of the CGS Scheme in Lucknow, Uttar Pradesh

       i. Availability of Guarantee Cover for MSEs in Lucknow, Uttar 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 Lucknow, Uttar 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 Lucknow, Uttar 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 Lucknow, Uttar 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 Lucknow, Uttar 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 Lucknow, Uttar 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 Lucknow, Uttar 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 Lucknow, Uttar Pradesh

Provided below is the step-by-step process of availing of the CGS scheme online in Lucknow, Uttar 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.