Meghalaya signs MoU with Credit Guarantee Fund for MSME Borrowers

The government of Meghalaya on Friday signed a Memorandum of Understanding with the Credit Guarantee Fund for Micro and Small Enterprises (CGFTMSE) to facilitate the flow of credit to MSME borrowers.

The MoU between the State Department of Finance and CGTMSE under the Ministry of MSMEs has been signed to implement the Meghalaya Credit Guarantee Scheme, according to a statement released by the department.

This MoU will strengthen the credit delivery system and facilitate the flow of credit to the MSE sector, he added.

Chief Minister of Meghalaya, Conrad Sangma, who was present during the signing of the MoU, emphasized that such interventions by the state government are part of the overall objective of encouraging and promoting the entrepreneurship in the state.

Currently, loans taken by MSME borrowers are covered by the Credit Guarantee Trust Fund for Micro and Small Enterprises (CGTMSE) against a risk cover of 75% of the loan amount under various MSME schemes.

However, banks still perceive their 25% risk share as high. This is one of the disincentives for banks to extend credit to MSME borrowers.

To overcome this major challenge, the launch of the MCGS increases the coverage guarantee to a maximum of 95% and will minimize risk and encourage collateral-free lending by member lending institutions, the statement said.

Through this mechanism, the state government builds on the existing CGTMSE program of the Government of India. With a contribution of Rs 5 crore, a wallet of Rs 250 crore would be created.

Considering the average loan size of Rs 1 lakh, more than 25,000 units would be supported through this state government intervention. Moreover, considering 3 employees per unit, 75,000 employment opportunities would be generated in the MSE sector in the state.

The MCGS will start tentatively from November 1 this year and will continue until the portfolio reaches a level commensurate with the contribution of the state government.

The total commitment of the corpus to the proposed MCGS will be increased considering the initial performance of the scheme with the corpus of Rs 5 crore.

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