CGTMSE: Loan Scheme, Meaning, Full Form, Eligibility, Benefits, Interest Rate, and Coverage

The CGTMSE scheme provides a credit guarantee, liberating entrepreneurs from the burden of repaying the loan, if by any chance their business fails. Know more about the scheme.
Business Loan
2 min read
14 October 2023

In a nation teeming with entrepreneurial spirit, financial support is often the bridge between dreams and reality. The credit guarantee fund trust for micro and small enterprises (CGTMSE) scheme emerges as a beacon of hope for aspiring business owners, offering financial assistance and risk mitigation.

In this handy guide, we will explore the CGTMSE scheme, its features, eligibility criteria, application process, and the benefits it brings to the world of small and micro enterprises.

What is the CGTMSE scheme?

The credit guarantee fund trust for micro and small enterprises (CGTMSE) is a robust scheme initiated by the Government of India. It facilitates the availability of credit to micro and small enterprises (MSEs). Established with the objective of enabling better access to funds, the scheme primarily focuses on new and existing micro and small business owners, stimulating entrepreneurship, and economic growth.

CGTMSE Scheme – Highlights



Scheme name

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)


To provide credit guarantee to lenders for loans extended to micro and small enterprises (MSEs)

Governing body

Credit Guarantee Fund Trust for Micro and Small Enterprises


Micro and Small Enterprises (MSEs) across various sectors

Eligibility criteria

MSEs engaged in manufacturing or service activities

Maximum loan amount covered by guarantee

Up to Rs. 2 crore for both term loans and working capital facilities

Guarantee coverage

Varies based on the loan amount and category of borrower

Guarantee fee

Typically a one-time fee charged by the CGTMSE

Types of loans covered

Term loans and working capital loans extended to MSEs

Collateral requirements

Collateral-free loans up to Rs. 2 crore for eligible MSEs

Guarantee period

Generally, up to 5 years from the date of disbursement of credit facility

Default coverage

A portion of the defaulted amount is covered by the CGTMSE, subject to certain conditions

Participating Financial Institutions (PFIs)

Banks, financial institutions, NBFCs, and other eligible lenders

Application process

Through PFIs offering loans to MSEs, which apply for CGTMSE coverage on behalf of borrowers

Claims Process

Initiated by PFIs in case of default by the borrower, subject to specified procedures

Contribution from Borrowers

Typically, no direct contribution is required from borrowers


How does the CGTMSE scheme work?

The CGTMSE scheme operates through a systematic process to provide credit guarantee to lenders for loans extended to Micro and Small Enterprises (MSEs). Here's how it works:

Step 1: MSEs apply for loans from participating financial institutions (PFIs), such as banks or NBFCs.

Step 2: The PFIs assess the creditworthiness of the MSE borrowers and their loan requirements.

Step 3: The PFI applies to the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) for coverage of the loan under the scheme on behalf of the MSE borrower.

Step 4: Upon verification and approval by CGTMSE, the loan is covered under the scheme, providing credit guarantee to the PFI against default by the MSE borrower.

Step 5: Once approved, the PFI disburses the loan amount to the MSE borrower.

Step 6: The MSE borrower repays the loan according to the agreed terms. If default occurs, the PFI initiates the claims process with CGTMSE.

Step 7: CGTMSE settles the claim partially, covering a portion of the defaulted amount as per the scheme's terms and conditions.

Success of the CGTMSE Scheme

The CGTMSE scheme has been instrumental in fostering the growth of Micro and Small Enterprises (MSEs) by providing crucial access to finance. By offering credit guarantees to lenders, it has significantly reduced the collateral burden on MSEs, facilitating easier access to credit. This has resulted in increased entrepreneurial activity, job creation, and economic development, particularly in underserved regions. The scheme's success lies in its ability to mitigate credit risk for lenders while empowering MSEs to thrive and expand.

Types of credit facilities available under the CGTMSE scheme

Under the CGTMSE scheme, Micro and Small Enterprises (MSEs) can avail themselves of various credit facilities, including term loans and working capital loans. Term loans are typically used for acquiring fixed assets or long-term investments, while working capital loans provide funds for day-to-day operations. These facilities offer flexible financing options tailored to the specific needs of MSEs, enabling them to sustain and grow their businesses with adequate financial support.

Credit guarantee under CGTMSE Scheme

Under the CGTMSE scheme, credit guarantee is provided to lenders such as banks, Non-Banking Financial Companies (NBFCs), and other financial institutions, covering loans extended to Micro and Small Enterprises (MSEs). This guarantee mitigates the risk for lenders, encouraging them to extend credit to MSEs without the need for collateral. In case of default by the MSE borrower, the CGTMSE reimburses a portion of the outstanding loan amount to the lender, thus safeguarding their interests.

Features and benefits of CGTMSE scheme

  1. Loan guarantee:
    One of the standout features of the CGTMSE scheme is its provision of credit guarantees to financial institutions, including banks and Non-Banking Financial Companies (NBFCs). This guarantee mitigates the risk involved in lending to micro and small enterprises.

  2. Loan amount:
    Under the CGTMSE scheme, eligible borrowers can avail collateral-free loans up to a specific limit, which is subject to change based on the scheme's regulations.

  3. Loan Tenure:
    The scheme provides flexibility in the loan tenure, enabling borrowers to repay their loans over an extended period, depending on the nature of the business.

  4. Wide coverage:
    The CGTMSE scheme covers a wide range of business activities, making it accessible to various sectors of the economy.

  5. Reduced collateral requirement:
    For micro and small enterprises, one of the primary obstacles to accessing credit is the lack of collateral. The CGTMSE scheme mitigates this issue, as loans under this scheme are primarily collateral-free.

  6. Competitive Interest rates:
    The interest rates on business loan provided under the CGTMSE scheme are often competitive, making it an attractive financing option for entrepreneurs.

  7. Smoother access to credit:
    This scheme encourages financial institutions to provide credit to businesses they might have otherwise considered high-risk, fostering economic development.

CGTMSE scheme eligibility

The CGTMSE scheme targets micro and small enterprises, encompassing various sectors and activities. To be eligible for this scheme, a business must meet the following criteria:

  • The business should be classified as a micro or small enterprise.
  • The proposed business activity should not fall under the negative list of the scheme.
  • The business owner should possess the required skills and experience in the specific sector.
  • The business should comply with all statutory and regulatory requirements.

Business Loan Eligibility Criteria can vary, so it is advisable to check with the respective lending institution for precise information regarding your business's eligibility.

How to Apply for the CGTMSE scheme

The process of applying for a loan under the CGTMSE scheme is relatively straightforward. Here are the essential steps:

  1. Identify a lending institution:
    First, identify a financial institution participating in the CGTMSE scheme, such as a bank or NBFC, to apply for the loan.

  2. Documentation:
    Compile all necessary documentation required by the lending institution. This usually includes business plans, financial statements, and any other documents specific to the lending institution's requirements.

  3. Application submission:
    Submit your loan application, along with the necessary documentation, to the selected financial institution. Ensure that you meet all eligibility criteria outlined by the lending institution and the CGTMSE scheme.

  4. Evaluation and approval:
    The financial institution will evaluate your loan application, assess the feasibility of your business plan, and verify your eligibility for the CGTMSE scheme. If approved, your loan application will move forward.

  5. CGTMSE guarantee:
    Upon approval, the financial institution will apply for a guarantee cover from the CGTMSE for the sanctioned loan amount. This guarantee mitigates the institution's risk, increasing the likelihood of approval.

  6. Loan disbursement:
    Once the guarantee is in place, and all necessary requirements are met, the financial institution disburses the loan amount to your business.

  7. Repayment:
    Repay the loan as per the agreed-upon terms and conditions.

Documents required for CGTMSE loan application

The specific documentation required can vary depending on the lending institution and the nature of your business. However, here are some common documents you may need when applying for a loan under the CGTMSE scheme:

  • Business plan and project report
  • KYC documents of the business owners
  • Proof of business ownership
  • Financial statements and projections
  • Business registration and licences
  • Income Tax Returns
  • Bank statements
  • Any additional documents specified by the lending institution

In conclusion, the CGTMSE scheme is a valuable initiative by the government to support micro and small enterprises in India. It simplifies the loan application process, reduces the collateral burden, and fosters entrepreneurship by facilitating easier access to credit. Whether you are starting a new business or looking to expand an existing one, the CGTMSE scheme could be the financial boost you need to achieve your business goals.

Limitations of the CGTMSE Scheme

  1. Coverage limitation: The scheme has a cap on the maximum loan amount eligible for guarantee, limiting its applicability for larger financing needs.
  2. Eligibility criteria: Certain MSEs may not meet the criteria set by the scheme, thereby excluding them from accessing its benefits.
  3. Claims processing time: The process of claims settlement by CGTMSE may involve bureaucratic delays, impacting the timely reimbursement to lenders in case of borrower default.
  4. Risk aversion: Lenders may still exercise caution due to residual risk, particularly for higher-risk MSE borrowers.
  5. Coverage exclusions: Certain sectors or activities may be excluded from coverage under the scheme, restricting access for MSEs operating in those segments.

CGTMSE coverage criteria

  • CGTMSE offers coverage against default for micro and small enterprises in India.
  • Guarantees up to 75% (or 85% for specific borrowers) of defaulted principal amounts.
  • Maximum guarantee cap of Rs. 37.50 lakh for credit facilities up to Rs. 50 lakh.
  • Coverage includes term credits and outstanding capital advances, including interest.
  • Period covered is up to one quarter or until the account becomes an NPA or filing of a suit, whichever is lower.
  • Charges like penal interest or service fees are not covered under the guarantee.

Steps to avail Business/MSME Loan under the CGTMSE Scheme

The process for applying and obtaining loans under CGTMSE unfolds as follows:

Step 1. Establishing the Business Entity

Prior to commencing the CGTMSE loan application, establish a suitable business entity and secure all necessary approvals and tax registrations.

Step 2. Drafting a Business Report

Conduct a thorough market analysis and compile a detailed business plan encompassing key aspects such as the business model and financial projections. Seeking professional assistance for preparing accurate project reports can enhance approval prospects.

Step 3. Loan Sanction by the Bank

Submit the loan application along with the business plan. Banks evaluate the viability of the business model and sanction the loan in accordance with their policies.

Step 4. Securing the Guarantee Cover

Upon loan sanction, the bank applies for CGTMSE guarantee cover. Upon approval, pay the requisite guarantee fee and service charges. Download the CGTMSE loan application form from the official website.

The CGTMSE scheme includes 141 banks, including major public and private sector institutions like State Bank of India, United Bank of India, Punjab National Bank, and others.

CGTMSE charges

The CGTMSE charges are fees levied by the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to provide credit guarantees to lenders. These charges vary based on the sanctioned loan amount.

Loan amount range

CGTMSE charges (Percentage)

Up to Rs. 10 lakhs


Above Rs. 10 lakhs to Rs. 50 lakhs


Above Rs. 50 lakhs to Rs. 1 crore


Above Rs. 1 crore to Rs. 2 crores


Above Rs. 2 crores to Rs. 5 crores



Which enterprises can avail of the CGTMSE fund?

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) primarily caters to the needs of micro and small enterprises (MSEs) in India. MSEs from various sectors can avail of the CGTMSE fund, including:

  1. Manufacturing enterprises: Small-scale manufacturing units producing goods across industries such as textiles, food processing, and engineering.
  2. Service enterprises: Micro and small service providers like IT services, consulting firms, and hospitality businesses.
  3. Trading enterprises: Small traders engaged in retail or wholesale trade of goods, including consumer goods and agricultural products.
  4. Agro-based enterprises: Micro enterprises involved in agricultural activities, including farming, processing, and marketing.
  5. Ancillary enterprises: Small-scale ancillary units supporting larger industries by providing components, parts, or services.
  6. Cottage industries: Traditional craft-based enterprises producing handmade goods like handicrafts, handlooms, and artisanal products.
  7. Other small businesses: Small-scale enterprises engaged in diverse sectors like healthcare, education, and construction.

These enterprises can access CGTMSE support to obtain collateral-free credit facilities and fulfill their financial requirements for growth and expansion.

Additional Reading: Udyogini Scheme

Additional Reading: ECLGS Scheme


1. Bajaj Finance Limited (“BFL”) is a Non-Banking Finance Company (NBFC) and Prepaid Payment Instrument Issuer offering financial services viz., loans, deposits, Bajaj Pay Wallet, Bajaj Pay UPI, bill payments and third-party wealth management products. The details mentioned in the respective product/ service document shall prevail in case of any inconsistency with respect to the information referring to BFL products and services on this page.

2. All other information, such as, the images, facts, statistics etc. (“information”) that are in addition to the details mentioned in the BFL’s product/ service document and which are being displayed on this page only depicts the summary of the information sourced from the public domain. The said information is neither owned by BFL nor it is to the exclusive knowledge of BFL. There may be inadvertent inaccuracies or typographical errors or delays in updating the said information. Hence, users are advised to independently exercise diligence by verifying complete information, including by consulting experts, if any. Users shall be the sole owner of the decision taken, if any, about suitability of the same.

Frequently asked questions

What is the full form of CGTMSE?

The full form of CGTMSE is a credit guarantee fund trust for micro and small enterprises.

What is the CGTMSE charge?

The CGTMSE charges include a one-time guarantee fee and an annual service fee, both of which vary depending on the loan amount and tenure. These charges are typically paid by the borrower.

How is CGTMSE advantageous for business?

The CGTMSE scheme offers several advantages for micro and small enterprises, including access to collateral-free loans, competitive interest rates, extended repayment tenures, and credit guarantees to mitigate risk for lenders. It helps these businesses access the funds they need to grow and prosper, contributing to economic development.

What is the credit limit under CGTMSE?

The credit limit under the CGTMSE scheme is up to Rs. 2 crore per borrower, including term loans and working capital. The credit facility may be extended as cash credit, term loans, or a combination of both. The collateral-free loan under CGTMSE scheme is provided to micro and small enterprises to promote entrepreneurship and facilitate credit flow.

What is the annual guarantee fee in CGTMSE?

The annual guarantee fee in the CGTMSE scheme is 1.5% of the credit facility sanctioned, depending on the loan amount and repayment period. The guarantee fee is payable in advance in one or more instalments and is non-refundable. However, there are some exemptions for the guarantee fee for certain categories of borrowers.

What is the maximum limit of CGTMSE?

The maximum limit of CGTMSE is Rs. 2 crore for both term loans and working capital facilities.

What is the lock-in period in CGTMSE?

The lock-in period in CGTMSE is 18 months from the date of last disbursement or guarantee approval, whichever is later.

Who is eligible for the CGTMSE scheme?

Micro and Small Enterprises, whether newly established or already in operation, involved in manufacturing or service activities, are eligible. This excludes entities engaged in agriculture, Self Help Groups (SHGs), and similar sectors.

Which banks provide the CGTMSE scheme?

Various commercial banks, regional rural banks, and financial institutions participate in the CGTMSE scheme. The list of participating banks and financial institutions are regularly updated on the official CGTMSE website.

Is Mudra loan covered under CGTMSE?

The Mudra Loan Scheme falls under the purview of CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises), offering both term loans and overdraft facilities. In the event of default, the government takes responsibility for loan repayment.

What is the charge required by the CGTMSE for loan up to 5 lakh?

The CGTMSE charges for loans up to Rs. 5 lakh vary based on the sanctioned amount. For credits up to Rs. 5 lakhs, the charge is 0.75% of the sanctioned amount. Meanwhile, for credits exceeding Rs. 5 lakhs but up to Rs. 100 lakh, the charge increases to 0.85%. Additionally, under this scheme, the credit guarantee ranges from 75% to 85% for micro-enterprises, with a tenure of 5 years, providing financial security and support for small-scale borrowers.

What is the lock period for CGTMSE?

The lock period for CGTMSE typically varies depending on the specific terms of the loan agreement between the lender and the borrower. However, generally, the lock period is up to 5 years from the date of disbursement of the credit facility. During this period, the borrower is expected to adhere to the terms of the loan agreement, and any changes or early repayment may be subject to penalties or renegotiation terms specified therein.

What are the benefits of a CGTMSE loan?

CGTMSE loans offer several benefits to micro and small enterprises, including access to collateral-free credit, simplified application procedures, and reduced risk for lenders. Additionally, these loans often come with competitive interest rates and longer repayment tenures, facilitating easier access to funds for business expansion and working capital needs.

Show More Show Less