The Credit Guarantee Fund for Micro Units (CGFMU) scheme is a government initiative aimed at supporting emerging businesses, especially small and micro enterprises, in India. It offers a guarantee cover for loans obtained from lending institutions.

 

In case of a loan default, the lending institution can recover a portion of the amount from the government. This scheme helps smaller businesses in the manufacturing, service, and trading sectors access necessary funds.

 

Under the Pradhan Mantri Mudra Yojana (PMMY), businesses can qualify for loans of up to ₹10 Lakhs. The application process is simple, and funds are typically disbursed within 7 to 10 days.

Objectives of the Credit Guarantee Fund for Micro Units

The primary objective of this scheme is to provide collateral-free credit of up to ₹10 Lakhs to small and micro units. Additional objectives include:

  • Providing collateral-free loans to small and micro units

  • Offering guarantee cover to lending institutions under CGFMU

  • Reducing risk for lenders and encouraging them to extend credit to smaller businesses

  • Supporting smaller businesses and facilitating access to finance for growth and development

Benefits of the Credit Guarantee Fund for Micro Units

The Credit Guarantee Fund Scheme offers loans to smaller enterprises with a straightforward application process and no requirement for collateral. Some key benefits of this loan scheme include:

  • Through this scheme, the government provides collateral-free loans, eliminating the need to pledge any assets to secure funds. This supports businesses financially while reducing risk for lenders

  • Business owners can access a maximum loan amount of ₹10 Lakhs to meet various business needs

  • The Government of India backs loans obtained through financial institutions in case of default

  • The application process is simple and ensures quick disbursal. Upon successful application, funds are typically credited within 7-10 days

Eligibility Criteria

The eligibility criteria for the CGFMU loan scheme extends to businesses covered under the Pradhan Mantri Mudra Yojana (PMMY). Other CGFMU scheme eligibility terms include:

  • You need to have a small business unit engaged in manufacturing, trading, or services

  • Individuals with a micro business unit, such as vendors or artisans

  • Your business can be either new or existing

  • The applying business has to be registered under the GST

Documents Required

If you are a business owner applying for the CGFMU loan scheme, you must keep the following documents ready: 

  • KYC Documents: PAN card, Aadhaar card, passport, or voter ID

  • Business Proof: GST registration, business licence, or incorporation certificate

  • Financial Statements: Bank statements, profit and loss account, and balance sheet

  • Loan Application Form: Duly filled and signed

  • Income Proof: ITR filings or audited financial reports

How to Apply for the Credit Guarantee Fund for Micro Units

To apply for this credit guarantee scheme, you need to approach a lending institution providing funds under this scheme. Here is how:

  1. Explore the lending institutions under the CGFMU loan scheme 

  2. Visit a nearby bank branch for offline processing or use the lender's portal for quick online completion

  3. Fill out the application form to apply for the scheme and submit the relevant documents 

  4. The lender will decide and confirm the loan amount as per your eligibility

  5. After verification, the lender will disperse the funds to your account within 7-10 days

Impact of CGFMU on Micro Enterprises in India

The CGFMU scheme, launched by the government for small and micro units, has been beneficial for approximately  112,31,088 businesses, where over ₹154,000 Crores have been guaranteed. Here are some other details:

  • As of March 2022, over 100 lakh small and micro businesses in India have benefited from the CGFMU loan scheme. This initiative enables businesses to secure funding and drive innovation to support their growth.

  • As this scheme provides loans without requiring collateral, it allows businesses to obtain funding more easily and in a shorter time.

  • These loans are facilitated by third-party banks and NBFCs, ensuring efficient and accessible financing.

  • Since the Government of India provides a guarantee cover of up to 75%, banks and lenders are incentivised to extend financial support to businesses.

  • The repayment tenure for these loans is five years, reducing the financial burden on businesses in their growth phase.

Challenges and Future Prospects of CGFMU

Apart from the benefits provided by the scheme, certain challenges of CGFMU have been identified, particularly the reduced benefits for banks. 

  • As the government provides a 75% guarantee cover on these loans, the benefits received by banks and lending institutions are lower

  • The application process is time-consuming and complex

  • The claim settlement procedure under the CGFMU scheme is lengthy

  • Banks face high-security risks due to the absence of collateral

  • The guarantee fee and refinancing charges are significantly high

 

This scheme aims to offer a fully online and seamless application process. In the future, complete digitisation is expected, along with a real-time data upload feature. Data management is anticipated to improve, making the application process more transparent.

Frequently Asked Questions

Is the Mudra loan covered under the CGFMU?

Yes, Mudra loan falls under the CGFMU scheme, which provides credit guarantee cover to lenders offering funds under this loan.

What is the CGFMU?

The CGFMU is a financial assistance scheme that offers guaranteed coverage on loans granted to small and micro units. Banks and NBFCs provide these loans to borrowers, while this scheme ensures up to 75% coverage of the loan amount in case of default.

What is the difference between CGFMU and CGTMSE?

The CGFMU scheme applies to small and micro units, whereas CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) supports small and micro enterprises through guarantees. The maximum loan amount under CGFMU for individuals is ₹10 Lakhs and ₹20 Lakhs for self-help groups. The CGTMSE provides coverage for loans up to ₹5 Crores.

What is CGFMU coverage for the SHG group?

The CGFMU coverage for self-help groups (SHGs) is set at ₹20 Lakhs. The first quarter of this loan needs to be repaid within a tenure of 24 to 36 months.

What is the maximum limit for CGFMU?

The maximum limit provided under CGFMU per borrower is ₹10 Lakhs. This amount is granted by banks, NBFCs, or other financial institutions and cannot exceed ₹10 Lakhs.

Are CGFMU fees refundable?

Once paid by the lending institution, CGFMU fees are non-refundable. However, refunds apply in cases such as excess remittance or advance payments where the application is subsequently rejected.

Is CGFMU coverage up to ₹20 Lakhs?

CGFMU provides coverage of ₹10 Lakhs for micro and small loans, along with an overdraft facility of ₹10,000 under the PMMY scheme. However, for SHGs, the loan coverage extends to a loan amount of ₹20 Lakhs.

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