Emergency Credit Line Guarantee Scheme (ECLGS)

India’s Finance Ministry introduced the emergency credit line guarantee scheme (ECLGS) in May 2020, intending to provide financial assistance to this pandemic hit economy. Through this scheme, the Indian government aims to provide Rs. 3-lakh crore of unsecured loans to micro, small, and medium enterprise (MSME) and and companies across the country. This is to mitigate the losses suffered due to COVID-19-induced lockdowns. Many MSMEs have faced major challenges, and businesses may also explore other financing options, such as the E Mudra Loan, to enhance their financial stability.

Keeping the economic impact of this pandemic in mind, the Indian Government has extended the deadline of this scheme from June 2021 to September 2021. This extension gave businesses more time to apply for relief, particularly those facing immediate financial challenges. For MSMEs looking for ongoing support, the Mudra loan could be a helpful additional option.

Objective of ECLGS Scheme

Here are the main goals of the ECLGS scheme:

• Provide financial help to businesses affected by the COVID-19 pandemic
• Encourage economic growth by helping businesses cover operational costs and restart their activities
• Offer collateral-free loans, called GECL loans, to eligible borrowers
• Ensure liquidity in the market and prevent business shutdowns and job losses
• Support sectors like MSMEs, businesses, and individual borrowers
• Promote self-reliance and strengthen the Indian economy
• Make credit more accessible at affordable interest rates, supporting business growth and sustainability
• Aid in the overall economic recovery and contribute to the country's development

Features of the ECLGS Scheme

Here are the key features of the ECLGS scheme:

• Collateral-free loans
  The scheme offers GECL loans without requiring any collateral, so eligible borrowers can access credit without providing extra security.
• Government-backed
  The loans are 100% guaranteed by the government, providing assurance to lenders and lowering the risk of lending.
• Extended loan tenure
  Borrowers can take loans with a repayment period of up to 5 years, including a 1-year break from repaying the principal amount.
• Eligibility criteria
  The scheme is available to eligible MSMEs, business enterprises, and individual borrowers with outstanding loans as per the specified conditions.
• Loan amount
  Borrowers can get up to 20% of their total outstanding loan amount (as of February 2020).
• Interest rate
  The interest rate on GECL loans is capped, making borrowing more affordable for businesses.
• Loan usage
  The funds from GECL loans can be used for operational expenses, paying wages, clearing dues to suppliers, and more.
• No additional guarantee fee
  There is no extra guarantee fee required under the scheme, making it easier for borrowers to access the loan.

Versions of ECLGS scheme

• ECLGS 1.0: Launched in May 2020, it offered loans up to 20% of outstanding credit as of 29 February, 2020. This is subject to a maximum of Rs. 5 crore, for MSME and other eligible businesses. During this period, businesses could cover immediate expenses, and entrepreneurs may also consider the shishu mudra loan to strengthen their financial position.
• ECLGS 2.0: Introduced in November 2020, it extended the scheme to 26 stressed sectors identified by the Kamath Committee, as well as healthcare and education sectors. The loan limit was increased to Rs. 10 crore or 40% of outstanding credit, whichever is lower. In addition to this, businesses in other sectors can explore options such as the pmfme scheme, which provides targeted assistance to micro-food enterprises.
• ECLGS 3.0: Announced in March 2021, it covered business enterprises in hospitality, travel and tourism, leisure and sporting sectors. The loan limit was further enhanced to Rs. 40 crores or 40% of outstanding credit, whichever is lower. Companies in these sectors can benefit from this extension, while startups may find funding opportunities through the startup india seed fund scheme.
• ECLGS 4.0: Launched in June 2021, it focused on supporting the healthcare sector by providing loans up to Rs. 2 crore for setting up on-site oxygen generation plants in hospitals and clinics. The interest rate was capped at 7.5% for this version. The interest rate was capped at 7.5%. At the same time, businesses in agriculture can explore options under the nabard scheme for financial support.

ECLGS 3.0

Besides helping small and medium enterprises (SME) meet their working capital requirements, ECLGS 3.0 will also extend financial assistance to companies from other sectors. This includes sports, leisure, hospitality, travel and tourism, and sectors that have suffered severely during this lockdown. This scheme is available to organisations with total outstanding credit of less than Rs.500 crores as of 29 February 2020. The overdue balance is less than 60 days as of the date mentioned earlier. For businesses exploring other funding options, it might be helpful to consider the Pradhan Mantri MUDRA loan interest rate for better liquidity.

ECLGS 3.0 will have a repayment tenure of 6 years with a moratorium period of 2 years. The last date of disbursement for ECLGS 3.0 has been set to 30 September 2021. Under this scheme, the credit amount will be 40% of the total outstanding on 29 February 2020.

Purpose of emergency credit line guarantee scheme (ECLGS)

The emergency credit line guarantee scheme was introduced as a part of the Indian government’s COVID-19 financial relief package. Under this scheme, financial institutions in India provide emergency loan facilities to various companies and MSME that have suffered during this pandemic. This scheme can aid firms to meet their working capital needs and other operational costs as well.