On October 24, 2024, the Ministry of Finance in India announced significant amendments to the Scheme of Credit Guarantee Fund for Micro Units (CGFMU). This initiative aims to enhance financial support for micro units and entrepreneurs, enabling them to access funding more easily.
What is the Credit Guarantee Fund for Micro Units?
The CGFMU was established to provide collateral-free loans to micro enterprises, facilitating their growth and development. Under the Pradhan Mantri MUDRA Yojana (PMMY), the scheme has been instrumental in offering financial support to various categories of micro loans.
Key Amendments Explained
1. Definition of Micro Loan
One of the primary modifications pertains to the definition of a “Micro Loan.” The updated definition specifies:
- Loan Amount: Collateral-free loans can now be extended up to ₹20 lakh.
- Loan Categories: Loans are categorized based on the growth stage of the micro unit:
- Shishu: Loans up to ₹50,000
- Kishor: Loans above ₹50,000 and up to ₹5 lakh
- Tarun: Loans above ₹5 lakh and up to ₹10 lakh
- Tarun Plus: Loans above ₹10 lakh and up to ₹20 lakh, specifically for borrowers who have successfully repaid prior loans in the ‘Tarun’ category.
Additionally, an overdraft facility of ₹10,000 sanctioned under Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts is also eligible for coverage under this scheme.
2. Eligibility of Borrowers
The definition of “Eligible Borrower” has been expanded. Key points include:
- Micro Units/Enterprises: Both new and existing micro units are eligible, including those set up under the Joint Liability Group (JLG) framework.
- Loan Requirement: The credit requirement should not exceed the specified limit of ₹20 lakh.
- Self Help Groups (SHGs): SHGs are now included as eligible borrowers if their loan amount is above ₹10 lakh and up to ₹20 lakh.
This broadened eligibility aims to encompass a wider range of entrepreneurs and ensure that more individuals have access to necessary funds.
3. Coverage of Loans
The Fund will now cover micro loans up to the specified limit (currently ₹20 lakh) extended by Member Lending Institutions (MLIs) to eligible borrowers. Important considerations include:
- Application for Guarantee Cover: Lending institutions must apply for guarantee cover within the designated timeframe as per the Fund’s procedures.
- Qualifying Loans: Micro loans sanctioned since April 8, 2015, will qualify for guarantee cover under the scheme.
This change is aimed at streamlining the process for lenders, making it easier for them to provide loans with the backing of the guarantee fund.
4. Continuity of Terms and Conditions
Despite these modifications, it’s important to note that all other terms and conditions from earlier notifications remain unchanged. This ensures stability and continuity in the operations of the CGFMU.
5. Effective Date
These amendments are effective from October 24, 2024.
