Credit and financing for MSMEs: The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), which provides guarantee cover to lenders for unsecured loans to Micro and Small Enterprises (MSEs), has approved over 7 lakh guarantees over the past fiscal year 22, the second highest in eight years, according to government data. 7,09,883 cumulative loan guarantees for Rs 55,217.74 crore, up 14% from FY21, were approved in the last FY as the post-Covid recovery saw demand for credit increased among small businesses. Guarantees of 8.38 lakh, the highest since FY2015, and guarantees of 6.19 lakh were approved in FY20 and F21 respectively, according to dashboard data MSMEs. The decline in FY20 was likely due to a temporary halt in business activity after the first wave of the pandemic.

The scheme provides guarantee coverage to banks and other financial institutions in a ratio of 50/75/80/85 percent of credit extended, as per the guidelines of the scheme. The scope of guarantee coverage is 85% for micro enterprises for credit up to Rs 5 lakh and 50% for credit of Rs 10 lakh to Rs 1 crore per MSE borrower for commerce activity Retail. Additionally, the extent of guarantee coverage is 80% for women owned and/or operated MSEs and for all loans up to Rs 50 lakh in the North East (NER) region.

In terms of claims settled in FY22, 32,963 claims amounting to Rs 742 crore were settled compared to 26,427 claims involving Rs 565 crore settled in FY21 but declining from 39,937 claims involving Rs 880 crore settled in FY20, the highest since FY15.

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Meanwhile, to further improve the flow of credit to MSMEs, Finance Minister Nirmala Sitharaman had announced in this year’s budget the overhaul of the program with the required injection of funds. This would facilitate additional Rs 2 lakh crore credit for micro and small businesses and expand job opportunities, Sitharaman had said.

However, the loan disbursement limit under the CGTMSE was not improved by Sitharaman from the existing Rs 2 crore against industry expectations. Nevertheless, last month, the Parliamentary Industry Standing Committee again recommended raising the limit to Rs 5 crore regardless of the type of company, such as private company, limited liability company, partnership or individual company. The suggestion was part of the 315th report on grant applications (2022-23) for the MSME ministry presented by the panel led by Rajya Sabha member Dr. K Keshava Rao.