CGTMSE Fee Structure 2024: A Detailed Guide
CGTMSE Fee Structure 2024 for The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGTMSE) facilitates collateral-free loans for MSEs in India by providing a guarantee cover to Member Lending Institutions (MLIs). A key aspect of the CGTMSE scheme is its fee structure – comprising upfront and annual guarantee fees paid by MLIs.
In this comprehensive guide, we analyze the latest CGTMSE fee rates, calculation methodology, payment timelines, and other pertinent details related to the scheme’s structure as per the revisions announced in 2023.
CGTMSE Scheme Highlights
- CGTMSE was launched in 2000 by the Government of India and SIDBI to promote funding to the MSME sector without traditional collateral requirements.
- It guarantees credit facilities like term loans and working capital loans up to ₹5 crore extended by eligible banks and NBFCs to MSEs.
- The guarantee cover is provided upon payment of fees as per the applicable fee structure.
- Key benefits include no processing fee, simplified documentation, fast processing and the promise to settle valid claims without any delay.
Key Takeaway: CGTMSE enables an increased and timely flow of credit to MSEs by providing MLIs with a guarantee cover upon payment of guarantee fees.
Eligibility Criteria
The CGTMSE scheme and its concessional fee structure apply to:
- Loans up to ₹5 crore (increased from ₹2 crore earlier)
- All credit facilities except hybrid security and collateralized loans
- Units with Udyam registration validating MSE status
- Units engaged in Manufacturing, Services and specified Trading activities
- Loans sanctioned on or after 01.04.2021
Key Takeaway: CGTMSE guarantees loans up to ₹5 crore issued by MLIs to registered MSEs without hybrid security/collateral.
Annual Guarantee Fee (AGF) Rates
The guarantee fees are charged on an annual basis as per the following tiered structure:
Table 1: CGTMSE’s Slab-wise Standard Annual Guarantee Fee (AGF) Rates
Loan Amount | Standard AGF Rate |
---|---|
Up to ₹10 lakh | 0.75% p.a. |
>₹10 lakh – ₹50 lakh | 0.85% p.a. |
>₹50 lakh – ₹1 crore | 1.00% p.a. |
>₹1 crore – ₹5 crore | 1.20% p.a. |
- Rates reduced by up to 43% w.e.f 01.09.2023 making the scheme more affordable
- The minimum fee rate is now only 0.37% p.a. for loans under ₹10 lakh
- The above are standard rates; premiums apply for poor-performing MLIs
Key Takeaway: 4-tier AGF structure; significant fee rate reductions from Sept 2023 to enable higher credit flow to MSEs
Additional Concessions
Special discounts on standard rates are available for:
- Women entrepreneurs – 25% off
- Units in 117 Aspirational Districts – 10% off
- MSEs owned by PWD/SC/ST categories – 10% off
- ZED certified units – 10% off
Key Takeaway: Significant fee concessions to promote lending to women entrepreneurs and inclusive development
Risk Premium Framework
Additional risk premiums ranging from 10% – 70% of the standard AGF rate may be charged to MLIs based on:
- Higher portfolio risk – premium of up to 50%
- Persistent delay in claims settlement – additional 20%
Key Takeaway: Risk-based pricing model adopted; MLIs with weak performance to pay higher guarantee fees
Fee Calculation Methodology
The fees are calculated based on the guaranteed amount, i.e. MLI’s share of the credit facility covered under the guarantee.
Let’s understand this with an example:
- Total Term Loan Amount: ₹1.2 crore
- MLI’s share under CGTMSE coverage: ₹80 lakh
- Guaranteed amount: ₹80 lakh
- Standard AGF rate: 1.0% (loan above ₹50 lakh)
- Annual guarantee fee = 1.0% of guaranteed amount = 1.0% of ₹80 lakh = ₹80,000
Additional Aspects
- For outstanding amounts, AGF is calculated on a pro-rata basis for the uncovered period
- Undisbursed/cancelled amounts carry a fee of 0.50% per annum from the date of approval until the date of cancellation/maturity
- AGF accrues on NPA/irregular accounts also until the date of settlement of the first claim
Key Takeaway: AGF calculation based on MLI’s exposure under coverage; Pro-rata fees in certain cases
Payment Terms
- First Year Fee: To be paid upfront along with guarantee application
- AGF: Later years – 31st May every year
- Validity/Renewals: Payable annually until account closure or settlement of the first claim
Key Takeaway: Upfront fee plus annual AGF payments ensures the viability of scheme through revenue certainty
Updates in CGTMSE Fee Structure – 2023
Major changes in fee structure applicable w.e.f 01.09.2023:
- Lower rates – Minimum dropped to just 0.37% from 0.75% earlier
- Standardized fee of 1.75% p.a. for all trading activities
- Increased coverage eligibility to ₹5 crore from ₹2 crore earlier
- Relaxed claims process – Legal action threshold raised from ₹5 lakh to ₹10 lakh
Key Takeaway: Increased affordability, coverage limit and simplified claims settlement – a significant boost for credit flow to MSEs
These revisions reinforce CGTMSE’s commitment to supporting inclusive economic growth through sustainable credit delivery. As per industry estimates, the scheme has supported Institutional credit of over ₹3.45 lakh crore to more than 51 lakh MSEs since inception – showcasing the immense socio-economic impact of collateral-free loans.
The scheme is expected to facilitate increased finance flow to more MSE units and sub-sectors in the coming years with the new relaxed pricing and norms.
Key Takeaway: Revamped CGTMSE structure to unlock the next wave of MSE lending and development
Conclusion
- CGTMSE is a pioneering scheme that fulfils a crucial gap for MSE finance in India
- The reasonable fee structure and active risk monitoring ensure the viability and self-sufficiency of the scheme
- Upfront clarity on fees, regular reviews, and careful pricing tweaks make the structure balanced and effective
The latest rate changes, limits and processes further boost the scheme’s coverage and access for more MSE units. With digitization enbling innovative delivery models and credit assessment methods, CGTMSE is poised to scale new heights in enabling collateral-free finance in India.
Key Takeaway: Revamped CGTMSE fee structure – Increased affordability, prudence and commitment for fuelling MSE growth