Credit Guarantee Fund Scheme For Micro & Small Enterprises in Srinagar, Jammu and Kashmir – 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 Srinagar, Jammu and Kashmir 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 Srinagar, Jammu and Kashmir 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 Srinagar, Jammu and Kashmir.

What is the Credit Guarantee Fund Scheme in Srinagar, Jammu and Kashmir?

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 Jammu and Kashmir

Popularly known as the “Heaven on Earth,” Jammu and Kashmir are known for their mind-blowing and breathtaking views, snow-covered mountains, exquisite and pertinent monuments, exhilarating wildlife, and local handicrafts. After the Reorganization Act was passed on 31 October 2019, J&K regained its statehood and emerged as a union territory of India. It is located in the northern part of our country, and Jammu and Kashmir share their national boundaries with Ladakh, Himachal Pradesh, and Punjab and its International boundary with Pakistan.
Jammu and Kashmir is a beautiful and picturesque place for tourists from all over the world. Places like Vaishno Devi Temple, Shalimar Gardens, Dal Lake, Amarnath Cave, and many other places are among the major tourist spots. Jammu is known for its temples, whereas Kashmir is known for the lakes, valleys, and gardens. Demographically, there is various language, but the most widely spoken language is Kashmiri. Muslim comprise the majority of the population of Jammu and Kashmir.
The climate in J&K is favorable for agro-based products, horticulture, and floriculture. Horticulture is famous and widely used in rural areas, providing employment to many local inhabitants. This is a crucial and viable step toward fostering the rural economy and enhancing the production of exotic handicraft and handlooms. Jammu and Kashmirare well-known for their small-scale industries such as carpet weaving, silks, shawls, basketry, copper and silverware, pottery, and walnut wood. The Gross State Domestic Product (GSDP) has increased by 8.51% between 2015-16 and 2020-21.
Capital- Srinagar (Summer) and Jammu (Winter)

Top Business Ideas in Jammu and Kashmir
Jammu and Kashmir is a land full of opportunities where one can set up multiple business models. It is stretched from horticulture to the tourism sector and handicrafts. So, one can find numerous business ideas, employing the inhabitants, especially the local women. Given below is the list of ideas by which to start a business: –

Horticulture Business
If you are willing to find a flourishing and thriving business, then horticulture is the best business idea. As per the latest survey report, horticulture is the largest business idea as it constitutes 23% to 25% of the GDP of the Jammu and Kashmir alone. You can create substantial employment opportunities for the young generation through this business. Jammu and Kashmirare rich in mineral soil layers and contain various rivers and water bodies. As a result, Jammu and Kashmir are among the best places for agro-business or farming-related businesses.
You can choose any of the items mentioned below to start your business:
Onion
Vegetable Seeds
Mushroom
Apple
Strawberry
Saffron
Almond
Potato

Handicraft Business
Handicraft is one of the key strengths of Kashmir. In the business of handicrafts, local customization comes in handy. Hence, this state has a huge potential in the field of handicrafts. There are various business products such as carpet weaving, silks, shawls, basketry, etc. Hence, it would be best to have skilled labor and raw materials to start the business. As per the latest records, more than 3.4 lakhs of craftsmen are engaged in this business. So, if you are considering starting your business, a handicraft business is a good choice. As a fact, local handicraft is available in abundance here.

Sericulture Business
From ancient times, Jammu and Kashmir have been well-known for their silk generation as they have various scopes to succeed in the business paradigm. As a fact, Kashmir has the best quality Bivoltine Mulberry silk in India. This silk is famous for its superior quality, soft texture, extended length, and adaptability to all climate changes. The business model possesses a good position in the growth and contribution of the state GDP.

Fishery Business
States like Bihar, Jammu, and Kashmir are also blessed with the water assets stretched around their territory of about 0.4 lacs hectares. This constitutes various high-altitude lakes, rivers, springs, torrential streams, and reservoirs. As we know, stream water is good for fish growth and accumulation, making fisheries an amazing and ideal business model for Kashmir and Bihar.

Poultry Farming Business
Local poultry farming is a thriving and ever-growing business in Jammu and Kashmir. Jammu and Kashmirare well-known for producing the best quality poultry creatures. As a fact, the local people seem fairly interested in consuming more poultry products. You can increase the business reach to various states and cities by expanding the farms and exporting to other states. So, by this method, you can make your lucrative business model within the state.

Startup Ecosystem of Jammu and Kashmir
Scattered pearls cannot make the necklace on their own, so you need to weave them in a common thread that adds elegance, poise, and beauty to the necklace and the pearls. The Jammu and Kashmir state has a similar story. As per the latest changes, the Startup India team thinks the support could be extended to the entrepreneurs. There are over 100 technology-based startups registered with DPIIT and the startup India working across sectors. Various other volunteer organizations, such as Jammu Startup Community and ThinkPods. There is an NIT (National Institute of Technology) that has the required potential to ignite innovation among the bright and young students who study there.
Attempting to accomplish this startup ecosystem task, the government of Jammu and Kashmir government is focusing on various sectors such as food processing, agriculture, renewable energy, and handicrafts by promoting startups in these crucial sectors.
Startup JK is an online platform for all the startup ecosystem stakeholders in J&K, including investors, mentors, accelerators, service providers, and government bodies. This platform provides a medium to connect with other members of the ecosystem and access crucial resources like information about pertinent government schemes, Learning, and Development program, discuss issues, the latest news, and blogs, among others.

How the scheme does work in Srinagar, Jammu and Kashmir?

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 Srinagar, Jammu and Kashmir

      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 Srinagar, Jammu and Kashmir

      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 Srinagar, Jammu and Kashmir

     i. It shall be compulsory for every borrower start-up MSE to complete the KYC process for the following persons in Srinagar, Jammu and Kashmir-

        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 Srinagar, Jammu and Kashmir

Benefits of the CGS Scheme in Srinagar, Jammu and Kashmir

       i. Availability of Guarantee Cover for MSEs in Srinagar, Jammu and Kashmir– 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 Srinagar, Jammu and Kashmir– 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 Srinagar, Jammu and Kashmir– 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 Srinagar, Jammu and Kashmir– 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 Srinagar, Jammu and Kashmir- 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 Srinagar, Jammu and Kashmir– 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 Srinagar, Jammu and Kashmir

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 Srinagar, Jammu and Kashmir

Provided below is the step-by-step process of availing of the CGS scheme online in Srinagar, Jammu and Kashmir-

      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.