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

1. Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) Presentation on Credit Guarantee Scheme

2. Micro, Small & Medium EnterprisesNew Nomenclature & Classification Enterprises Service (Ceiling on investment in Equipment) Manufacturing (Ceiling on investment in Plant & Machinery) Rs.25 lakh Micro Rs. 10 lakh Small Rs.2 crore Rs.5 crore Medium Rs.5 crore Rs.10 crore

3. Micro & Small Enterprises - Importance • Provide employment to more than 40 Million persons • Largest employment generating sector after agriculture • Employment potential at low capital cost • Constitute 95% of industrial units • Total of 13 Million registered / unregistered MSEs • Key contributors to national economy • 45% of manufacturing output • 40% of total exports • 9% of Gross Domestic Product Facilitating Collateral-free Credit to Micro & Small Enterprises

4. Guarantee Framework - Need Policy makers world over • Strive for equitable wealth distribution • Desire to direct credit flow to specific sectors • Seek to evolve mechanisms to achieve developmental objectives • Aspire for financial inclusion / overall economic development • Govern Banks for social empowerment Facilitating Collateral-free Credit to Micro & Small Enterprises

5. Guarantee Framework - Need • Banks exposed to various risks while lending • Default Risk factor - deterrent in MSE lending • Collateral - conventional risk mitigation tool • Lack of Collateral – commonly stated obstacle • Micro & Small Enterprises adversely affected • Need for alternate risk mitigation mechanism Facilitating Collateral-free Credit to Micro & Small Enterprises

6. Credit Guarantee – Global scenario • Advocated as effective credit supplementation tool • Largely promoted / sponsored by Government • Dates back to 1936 in Japan • Gained acceptance in Europe – 1950’s • Well evolved in most developed economies • Multiple agencies operate in some countries Facilitating Collateral-free Credit to Micro & Small Enterprises

7. Credit Guarantee in India • Export Credit Guarantee Corporation of India Ltd – established in 1957 – to cover risk of exporting on credit • Credit Guarantee Scheme for Small Scale Industries introduced in July, 1960 with Reserve Bank of India (RBI) as Administrator. RBI operated the scheme up to March, 1981 • Credit Guarantee Corporation of India Ltd – established in 1971 – to guarantee loans under priority sector • Merged with Deposit Insurance Corporation in 1978 to form Deposit Insurance and Credit Guarantee Corporation (DICGC) • Credit guarantee schemes of the Corporation discontinued as the credit institutions gradually opted out of the scheme Facilitating Collateral-free Credit to Micro & Small Enterprises

8. CGTMSE - Establishment • Set up as a Trust in August, 2000 and administered by a Board of Trustees • Government of India and Small Industries Development Bank of India (SIDBI) – the settlors – Contribution ratio 4 :1 • Initial Corpus – Rs.125 crore ; Present Corpus – Rs.1907 crore ; Committed Corpus – Rs.2500 crore Facilitating Collateral-free Credit to Micro & Small Enterprises

9. CGTMSE - Objectives • Shift from collateral to merit based lending • Act as catalyst of entrepreneurship promotion • Facilitate institutional credit flow to MSE sector • Address growth constraints of MSE sector • Enable financial inclusion / employment generation • Revive confidence in credit guarantee mechanism Facilitating Collateral-free Credit to Micro & Small Enterprises

10. Credit Guarantee Scheme (CGS) • Operated through Banks / Lending Institutions registered as Member Lending Institutions (MLIs) • Scheduled Commercial Banks / select Regional Rural Banks (RRBs) / other lending institutions as approved by Ministry of MSME eligible to register as MLIs • 97 Banks / RRBs / other lending institutions registered as MLIs with CGTMSE • Operations done through web-based B2B E-Business software Facilitating Collateral-free Credit to Micro & Small Enterprises

11. CGS - Definitions • Collateral Security – Security provided in addition to the primary security, in connection with the credit facility extended to the borrower • Primary Security – Assets created out of the credit facility extended and / or existing unencumbered assets which are directly associated with the project or business for which the credit facility has been extended Facilitating Collateral-free Credit to Micro & Small Enterprises

12. CGS – Cardinal Principles • Lender should extend credit without obtaining any Collateral Security / Third Party Guarantee • Interest Rate levied should be in accordance with Government / Reserve Bank of India guidelines / not more than 3% of lending Bank’s PLR Facilitating Collateral-free Credit to Micro & Small Enterprises

13. CGS – Eligible Credit facilities • Credit facility upto Rs.100 lakh sanctioned to MSEs (both manufacturing and service sector including small road and water transport operators, small business, professionals, self-employed persons and all other service enterprises under the ambit of MSEs as per RBI guidelines on “Lending to Priority Sector” but excluding retail trade) • Both Fund & Non-fund based Credit facilities viz., term loan, working capital, composite credit, LCs, Guarantees, etc. can be covered. Credit proposals above Rs.50 lakh will have to be rated internally and should be of investment grade • Credit Facility of above Rs.100 lakh can also be covered, but Guarantee Cover will be limited to Rs.62.50 lakh. No collateral security / third party guarantee shall be obtained by the MLI for credit facility above Rs.100 lakh Facilitating Collateral-free Credit to Micro & Small Enterprises

14. CGS – Special inclusions • Certain activities under Agri-Clinics and Agri-Business Centres (ACABCs)like Tissue Culture, Feed Processing & Testing Units, Honey & Bee product processing units, Seed Processing Units, Setting up of Information Kiosks / Cool Chain, etc. made eligible for guarantee cover under the scheme • Borrower may be sanctioned distinct / separate credit facilities, but only credit facility not backed by collateral security / third party guarantee can be covered under the Scheme Facilitating Collateral-free Credit to Micro & Small Enterprises

15. CGS – Extent of Guarantee Credit facilities extended by more than one bank and / or financial institution jointly and / or separately to eligible borrower upto a maximum of Rs.100 lakh per borrower subject to ceiling amount of individual MLI or such amount as may be specified by the Trust, in the order in which the application for guarantee cover has been lodged Facilitating Collateral-free Credit to Micro & Small Enterprises

16. CGS – Extent of Guarantee Facilitating Collateral-free Credit to Micro & Small Enterprises

17. CGS – Tenure of Guarantee • Tenure of Guarantee Cover for Term Credit, Combined Working Capital & Term Credit and Composite Credit is tenure of Term Credit / Composite Credit or loan termination date, whichever is earlier • Where Working Capital facility alone is covered, the tenure is for a block of five years or loan termination date, whichever is earlier. Thereafter, MLI should apply for renewal of Guarantee Cover • If tenure of Term Loan is 3 years, tenure of working capital will also be 3 years. After 3 years, if guarantee cover is to be continued for working capital, application for renewal to be lodged online Facilitating Collateral-free Credit to Micro & Small Enterprises

18. CGS – Cost of Guarantee MLIs at their discretion may pass on the cost of Guarantee Cover to the borrowers. However, responsibility of payment of Guarantee / Service Fee to the Trust will be on MLIs Facilitating Collateral-free Credit to Micro & Small Enterprises

19. CGS - Yearwise Performance (as at October 31, 2009) Facilitating Collateral-free Credit to Micro & Small Enterprises

20. CGS – Slabwise Coverage (as at November 15, 2009) Facilitating Collateral-free Credit to Micro & Small Enterprises Facilitating Collateral-free Credit to Micro & Small Enterprises

21. CGS – Overall Impact (As on November 15, 2009) Facilitating Collateral-free Credit to Micro & Small Enterprises

22. CGS – Top 10 MLIs –FY2010 (Based on approvals for FY2010 as at November 15, 2009) Facilitating Collateral-free Credit to Micro & Small Enterprises

23. CGS – Benefits • Credit facilities guaranteed under the Scheme carry Zero per cent Risk Weight / Provisioning for guaranteed portion (RBI Circular DBOD No.BP.BC.128/21.04.048/00-01 dated June 07, 2001) • Reduction in waiting period for recovery through legal process, realising the time value of money with hassle free & quick recovery of major portion of defaulted amount • Quicker dispensation of credit due to time saved on security creation / Title related issues of collaterals • In case of collateral, it is Bank’s responsibility to insure / secure the property when asset is taken over • Overall significant saving in Time & Energy cost of Bank’s Human Resources Facilitating Collateral-free Credit to Micro & Small Enterprises

24. CGS - Benefits Credit Guarantee Scheme - A tool for • Widening of credit portfolio • Better management of risk • Faster recovery of dues • Enhancement of profitability Facilitating Collateral-free Credit to Micro & Small Enterprises

25. Role of Credit Guarantee • A weak project cannot be turned into a viable one with guarantee cover and is only an additional comfort to the lender, as is collateral security • Banks should evaluate credit applications by using prudent banking judgement / due diligence / business discretion in supporting only viable projects under the Credit Guarantee Scheme and conduct the account(s) of the borrowers with normal banking prudence Facilitating Collateral-free Credit to Micro & Small Enterprises

26. The last couple of years of years have seen a sharp increase in the number of guarantees being approved which is a growing sign of acceptance of the scheme amongst banks and other MLIs. During FY2009, an all time high of 53,708 guarantees amounting to Rs 2199 crore were approved. In the current financial year, so far 78262 guarantees approvals for Rs 3589 crore have been extended. Cumulatively, 227457 guarantees amounting to Rs 8328.89 crore have been approved under the scheme as on November 30, 3009. Facilitating Collateral-free Credit to Micro & Small Enterprises

27. We welcome suggestions, advice and other inputs to improve our servicesContact us at :Credit Guarantee Fund Trust for Micro and Small Enterprises7th Floor, SME Development CentrePlot No.C-11, ‘G’ BlockBandra Kurla ComplexMumbai-400051Phone : 022-26541803-07, 61437800 (24 lines) Fax : 022-26541821Website : www.cgtmse.in Facilitating Collateral-free Credit to Micro & Small Enterprises

28. THANK YOU www.cgtmse.in Facilitating Collateral-free Credit to Micro & Small Enterprises