A bankable business idea remains a mere idea without the necessary guidance and funds. It’s a known fact that Shimla, Himachal 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 Shimla, Himachal 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 Shimla, Himachal Pradesh.
What is the Credit Guarantee Fund Scheme in Shimla, Himachal 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 Himachal Pradesh
Himachal Pradesh is a state in Northern India that has snow-laden mountains. The state is characterized by an extreme landscape featuring several peaks and river systems. Himachal Pradesh borders Punjab, Haryana, Ladakh, and Jammu Kashmir. It also shares an international border with the Tibet autonomous region in China. 90% of the state’s population resides in rural areas. Major sectors contributing to the economy of Himachal Pradesh are agriculture, hydropower, horticulture, and tourism. As per the Indian corruption study 2017, Himachal Pradesh is the least corrupt state in India.
Himachal Pradesh is ranked as the second-best performing state after Kerela in India on Human Development indicators. Agriculture is the main source of income and employment in Himachal Pradesh, and 90% of the total population residing in Himachal Pradesh depends directly or indirectly upon agriculture. Agriculture employs around 62% of the total workers in Himachal Pradesh. The main cereals grown in Himachal Pradesh are barley, maize, and rice, and apple is the principal cash crop grown in Shimla, Kullu, Chamba, Mandi, and Kinnaurdistricts.
After agriculture, hydropower is one of the primary sources contributing to Himachal Pradesh’s economy. The state has vast hydropower resources because of various perennial rivers flowing there. The high-capacity hydropower plants in Himachal Pradesh produce surplus electricity for its neighboring states like Delhi, Punjab, and West Bengal. Tourism is also one of the significant contributors to the economy of Himachal Pradesh. The state has breathtaking views that attract a lot of tourists all around the world, and Himachal Pradesh is preferred for adventure tourism by many tourists.
Capital- Shimla (Summer) and Dharamshala (Winter)
The startup ecosystem in Himachal Pradesh
The state has performed very well in the state startup ranking exercise 2018, and Himachal Pradesh has taken some major reforms to develop a robust startup ecosystem. According to the state startup ranking 2018, Himachal Pradesh has been acknowledged as an aspiring leader. In November 2016, the state government of Himachal Pradesh launched its startup policy called ‘Chief Minister Startup or Innovation Projects or New Industries Scheme.’ The vision of the Chief Minister’s startup policy is to turn the educated youth into entrepreneurs and job creators.
To develop entrepreneurial spirits in the young generation, the government of Himachal Pradesh is trying to build a strong and supportive startup ecosystem. Department responsible for building a strong startup ecosystem in Himachal Pradesh is the department of industries, and the Nodal Officer responsible for this task is the principal secretary (industries). To build a robust startup ecosystem, the state government has appointed a nodal team called startup and incentive cell with five members. The team’s task is to support the development of the startup ecosystem in the state.
Top business ideas in Himachal Pradesh
Floriculture
Himachal Pradesh has a group of climatic conditions which offer opportunities for the development of floriculture. You can set up a floriculture business and develop many floriculture products like flower seeds, live plants, etc. Himachal Pradesh has an agro-climatic condition that provides an ideal environment for the development of flowers and doesn’t need any additional planting material like expensive heating and cooling systems in the greenhouses. The floriculture business requires a considerable amount of investment and energy.
Fruit farming
Agriculture is the primary source of employment in Himachal Pradesh, and the fruit cultivation business is one of the best options for the startup. The vast tracts of land available in Himachal are perfectly suitable for growing fruits. Fruits farming is profitable and good for the environment as it helps prevent soil erosion and provides employment to the people. To set up a fruit farming business, you need a reasonable investment.
Photography
Shimla has beautiful views, and the natural beauty of Shimla attracts a lot of tourists. You can set up a photo studio in Himachal Pradesh. Many people prefer Himachal Pradesh for their pre-wedding photoshoot or destination wedding so by setting up a photo studio in Himachal Pradesh there are more chances of getting hired by them. Besides this, photographers work as freelancers, so if you are someone who likes to be their boss, then the photography business is undoubtedly meant for you.
Restaurant
If you have any idea about traditional Himachali food, you should open a restaurant in Himachal Pradesh. The traditional cuisine of Himachal Pradesh is very famous among tourists, so by opening a restaurant in Himachal, you will be able to express the Himachali culture to other people. For setting up a restaurant, you need a lot of capital for investment, and you should be able to run the business for at least six months without any profits.
Transport
Being a famous tourist site Himachal Pradesh attracts a lot of tourists. You can start a transport business in Himachal Pradesh and rent a two-wheeler or four-wheeler to tourists for exploring the state. Generally, the tourist prefers to explore the state in two-wheelers to enjoy the natural beauty of Himachal Pradesh to its fullest. For setting up transport businesses in Himachal Pradesh, you need reasonable investment, and you can start this business with two or three vehicles.
Hotel
Tourism is among the main sources of income and employment in Himachal Pradesh, so opening a hotel business for tourists is a good idea. People visit Himachal Pradesh for tourism, religious tourism, Heritage tourism, Eco tourism, and adventure tourism. So, opening a hotel in Shimla will help you in making huge profits. For setting up a hotel in Himachal Pradesh, you need a lot of investment, but once the business is established, it will be profitable. The government of Himachal Pradesh is also promoting tourism in the state which means that more tourists will come to Himachal Pradesh in search of hotels. Besides this, the state government exempts you from luxury tax if you open a hotel in the tribal area of Himachal Pradesh.
How the scheme does work in Shimla, Himachal 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 Shimla, Himachal 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 Shimla, Himachal 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 Shimla, Himachal Pradesh
i. It shall be compulsory for every borrower start-up MSE to complete the KYC process for the following persons in Shimla, Himachal 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 Shimla, Himachal Pradesh
Particulars | Percentage |
i. Composite Annual General Fee | 1% of the credit amount p.a. |
ii. Guarantee Fee for credit amounts up to Rs. 5 lakh | 0.75% |
iii. Guarantee Fee for credit amounts over Rs. 5 lakh and below Rs. 100 lakh | 0.85% |
Benefits of the CGS Scheme in Shimla, Himachal Pradesh
i. Availability of Guarantee Cover for MSEs in Shimla, Himachal 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 Shimla, Himachal 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 Shimla, Himachal 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 Shimla, Himachal 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 Shimla, Himachal 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 Shimla, Himachal 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 Shimla, Himachal 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-
Type of MSME in Shimla, Himachal Pradesh
|
Maximum extent of Guarantee for Credit Facilities in Shimla, Himachal Pradesh | ||
Till 5 lakh | Between5L- 50L | Between 50L- 2Crores | |
Micro Enterprises | 85% of the amount in default is subject to a maximum of 4.25 Lakhs. | 75% of the amount in default is subject to a maximum of 37.50 Lakhs. | |
Women entrepreneurs/ MSE Units situated in North- East India (comprising Sikkim) except credit facility up to Five lakh to micro-enterprises) | 80% of the amount in default subject to a maximum of 40 lakh | 75% of the amount in default is subject to a maximum of 1.50 Crores. | |
Other Categories of borrowers except those mentioned above | 75% of the amount in default defaulted subject to a maximum of Rs 37.50 Lakhs. | ||
Activity | From 10 lakh up to 1 Crore | ||
MSE Retail Trade | 50% of the amount defaulted subject to a maximum of Rs.50 Lakh. |
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 Shimla, Himachal Pradesh
Provided below is the step-by-step process of availing of the CGS scheme online in Shimla, Himachal 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.