What CGTMSE covers
The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), established by the Ministry of MSME and SIDBI, provides guarantee cover to eligible member lenders. It does not lend directly or approve a borrower’s application. This guide covers Credit Guarantee Scheme I (CGS-I for banks and specified institutions). Other CGTMSE schemes can have different terms.
Circular 250/2024-25 raised the CGS-I ceiling from ₹5 crore to ₹10 crore for guarantees approved from 1 April 2025, including covered working-capital enhancements in scope. Use the approval date and applicable scheme, and distinguish the facility or portion eligible to be covered from the percentage of eligible default the Trust may pay. The guarantee does not remove the borrower’s debt or the lender’s responsibility to appraise and recover it.
| Item | Check |
|---|---|
| Classification and registration | Confirm an eligible micro or small enterprise and current Udyam details. From 1 April 2025 the micro limits are ₹2.50 crore investment and ₹10 crore turnover; the small limits are ₹25 crore investment and ₹100 crore turnover. Apply both limits and the prescribed classification rules. Medium enterprises are outside CGS-I. |
| Borrower and activity | Check eligibility for new or existing units and the specific activity. The current coverage table includes eligible retail and wholesale trading. Do not assume a registration certificate alone is sufficient. |
| Lender and facilities | Check membership under the relevant CGS-I route. Eligible term credit, working capital and specified fund-based or non-fund-based facilities can be considered under the scheme. Separate the applicable scheme for another class of lender. |
| Security | Check primary security, collateral and third-party guarantees against the sanction and scheme. Financed machinery or inventory may be primary security even when additional collateral is waived. |
Hybrid security
A member lender may take collateral for part of the facility and obtain eligible CGTMSE cover for the remaining portion, subject to the scheme ceiling and conditions. For a ₹4 crore facility with ₹1.20 crore of collateral value accepted by the lender, the uncovered-by-collateral portion is ₹2.80 crore. If that entire portion is admitted to cover at an assumed 75% and is eligible on default, the illustrative maximum is ₹2.10 crore. Neither collateral value nor guarantee admission guarantees recovery.
Coverage percentage and annual guarantee fee
The April 2025 scheme table generally shows 75% for the ordinary borrower category; 85% for a micro enterprise up to ₹5 lakh; 90% for qualifying women entrepreneurs and MSEs promoted by Agniveers; and 85% for the listed SC/ST, disability, aspirational district, ZED and transgender categories. Separate regional and identified credit-deficient district rules apply. Check the exact category, facility band, location, admission date and applicable caps. Retail and wholesale trade appear in the same coverage table; a historic trading cap should not be read as the current general CGS-I cap.
| CGS-I slab | Standard AGF |
|---|---|
| Up to ₹10 lakh | 0.37% |
| Above ₹10 lakh up to ₹50 lakh | 0.55% |
| Above ₹50 lakh up to ₹1 crore | 0.60% |
| Above ₹1 crore up to ₹2 crore | 0.85% |
| Above ₹2 crore up to ₹5 crore | 1.00% |
| Above ₹5 crore up to ₹8 crore | 1.10% |
| Above ₹8 crore up to ₹10 crore | 1.20% |
These are standard rates under Circular 251 for guarantees approved or renewed from 1 April 2025. The scheme may apply risk premiums or discounts; verify the applicable rate and whether the lender passes the fee and tax to the borrower. The scheme uses the guaranteed amount for the first year and the applicable outstanding amount thereafter, with separate hybrid calculations. Obtain the fee base and billing dates from the lender rather than applying a percentage to the sanction limit in every year.
Lender responsibilities and claims
The lender applies for cover and observes the applicable fee and validity conditions. Obtain confirmation of coverage, scope and security. A promoter’s eligible personal guarantee and an outside third-party guarantee are not the same; check the scheme definitions and exceptions before assuming either is allowed. For an overdue loan, prudential NPA classification is a separate lender determination.
Under the cited CGS-I scheme, the lender tests whether cover was in force at NPA, the applicable lock-in, claim filing deadline, recovery action and any waiver. The usual lock-in is 18 months from the later of guarantee commencement and last disbursement; the published rule has a shorter nine-month period for qualifying guarantees up to ₹10 lakh with tenure up to 36 months. The first ordinary claim instalment is 75% of the eligible guaranteed amount, payable within 30 days where the claim is complete and in order; the remaining 25% follows the scheme’s later-claim conditions. The scheme also provides a single-instalment option at a reduced level for lenders. Use the terms applicable to the case and record post-claim recoveries.
Seven worked illustrations
These are hypothetical. An example’s funding, timing, security or claim result is not a commitment by a lender or the Trust.
1. Woman-owned manufacturing business
A qualifying women-led MSE seeks ₹2.50 crore to finance equipment and offers primary hypothecation. If the guarantee is admitted in the 90% category and the entire amount is an eligible default base, the illustrative cover is ₹2.25 crore. Verify ownership, category and lender appraisal rather than assuming that the promoter’s role alone proves eligibility.
2. ₹4.50 crore hybrid line
A factory seeks a ₹2.50 crore term loan and ₹2 crore cash credit. The lender accepts ₹1.50 crore of collateral value, one third of the total, and includes the remaining ₹3 crore in the scheme. At an assumed 75% on that eligible portion, the guarantee calculation is ₹2.25 crore. The simple sum with the collateral value is ₹3.75 crore, leaving ₹75 lakh of the original facility outside that sum even before valuation and recovery risk. No particular sanction time follows.
3. Wholesale trader seeks working capital
An eligible wholesaler has ₹6 crore annual turnover and seeks ₹1 crore. An illustrative turnover-based check at 20% would give ₹1.20 crore; this does not fix the bank’s sanction. If ₹1 crore is the applicable first-year fee base and the standard 0.60% slab applies with no adjustment, the fee is ₹60,000 before any applicable tax. Verify the actual scheme offer and current fee quote.
4. Outside personal guarantee on a ₹50 lakh facility
A branch considering a machinery facility asks for a relative’s guarantee. Ask it to identify whether the person is an outside third party under CGS-I and whether the proposed structure remains eligible. Distinguish promoter or partner guarantees where permitted and the treatment of separately collateralised portions. The bank can reassess the credit request on its own merits.
5. Budget the fee on a ₹4 crore facility
Assume ₹4 crore is the applicable first-year fee base, the standard 1.00% rate applies, and the lender passes the charge plus an assumed 18% GST to the borrower. Fee is ₹4 lakh and tax ₹72,000, giving ₹4.72 lakh cash outflow. At a constant ₹4 crore interest base and 9.5% loan rate, the simple fee-inclusive comparison before GST is 10.5%. A historical 1.35% assumption would have produced ₹5.40 lakh fee and ₹97,200 tax; do not use it for this standard-rate example. Consider fee timing, GST credit where eligible and actual utilisation for effective cost.
6. A September 2022 default
Assume a ₹1.20 crore historical loan and, solely for illustration, a documented eligible guaranteed amount of ₹96 lakh after checking the historical schedule and claim base. The first instalment at 75% of that amount is ₹72 lakh and the balance at 25% is ₹24 lakh before subsequent adjustments. The loan sanction does not establish the ₹96 lakh. Check historical lock-in, NPA, recovery and filing conditions against the actual approval and disbursement dates.
7. Three borrowings in Schedule III
A company has one land-backed term loan and two CGTMSE-covered loans. Under Schedule III Division I, classify borrowings by actual security. If machinery or inventory is validly charged, disclose the security appropriately; the Trust guarantee alone does not establish an asset charge. Reconcile primary security, guarantees and fee accounting to the loan documents and applicable reporting framework.
What to prepare for the lender
Collect Udyam and legal records, evidence of the borrower category, project and cash-flow projections, existing debt and charges, stock and debtor information and a books-to-GST turnover bridge. Discuss the lender’s required security, credit rating criteria, fee base, guarantee registration and cash-flow assumptions. A DSCR or credit score can inform underwriting, but it does not create a universal scheme approval threshold.
Frequently asked questions
1. What is the ceiling?
For CGS-I guarantees approved from 1 April 2025, check the ₹10 crore ceiling and separately the applicable default coverage percentage.
2. Can a medium enterprise use CGS-I?
No. Apply the current micro or small classification using both investment and turnover.
3. Can collateral and guarantee cover be combined?
Yes, under the hybrid rules if the lender admits the eligible portion and follows the security conditions.
4. Is the fee always charged to the borrower?
The lender pays the Trust. Check the sanction for pass-through, the applicable slab, fee base, adjustment and taxes.
5. Can a retailer or wholesaler qualify?
Eligible trading activity is included in the current CGS-I table. Check the borrower and facility conditions with a member lender.
6. What should finance teams model?
Use actual utilisation, interest, fees and fee dates, repayment capacity and the proposed security and guarantee mix. Underwriting remains with the lender.
Sources
- CGTMSE CGS-I Scheme Document, from 1 April 2025, including eligibility, coverage, fee, claims and prior schedules
- CGTMSE Circular 250/2024-25, increase to ₹10 crore
- CGTMSE Circular 251/2024-25, standard annual guarantee fees
- CGTMSE Circular 248/2024-25, modifications to CGS-I
- Ministry of MSME Notification S.O. 1364(E), revised enterprise classification
- Companies Act, 2013, Schedule III, Division I, read with amendments