Credit Enhancement Guarantee Scheme For Scheduled Castes

15 November 2023

217 7 mins read

This initiative aims to foster entrepreneurship among Scheduled Castes by providing credit enhancement guarantees to SC entrepreneurs seeking loans for working capital, term loans, or composite term loans from designated financial institutions. The scheme promotes innovation and growth technologies, empowering SC entrepreneurs to realise their business aspirations.

Table of Contents

Overview of Credit Enhancement Guarantee Scheme For The Scheduled Castes

The Credit Enhancement Guarantee Scheme supports Scheduled Caste entrepreneurs by providing guarantees to banks. It helps them get loans ranging from ₹0.15 crore to ₹5.00 crore, promoting entrepreneurship and access to financing.

Definition

For the purposes of this Scheme:

(i) ‘Amount in Default’ refers to the outstanding principal and interest in the borrower’s account(s) for working capital loan, term loan, or Composite Term Loan (including interest). It is calculated as of the date the account becomes Non-Performing Asset (NPA) or the date of the claim application, whichever is lower, with a maximum limit based on the guarantee cover amount.

(ii) ‘Collateral security’ means additional security provided along with the primary security for the credit facility extended by a lending institution or MLI to a borrower.

(iii) ‘Credit facility’ refers to any financial assistance in the form of working capital loan, term loan, or Composite Term Loan provided by the lending institution or MLI to eligible borrowers. For calculating the guarantee fee, the ‘credit facility extended’ signifies the amount of guarantee cover provided by the lending institution or MLI to the borrower.

(iv) ‘Eligible borrower’ pertains to Scheduled Caste Entrepreneurs covered under Para 5 of the main policy, who have been provided credit facility by lending institutions or MLIs without collateral security or third-party guarantees and do not fall under any restricted category as defined in the eligibility criteria of Para 6 of the main policy.

(v) ‘Guarantee Cover’ signifies the maximum coverage available per eligible borrower for the defaulted amount in relation to the credit facility provided by the lending institution or MLI.

(vi) ‘Lending institution(s)’ or ‘MLI(s)’ refers to commercial banks included in the second Schedule of the Reserve Bank of India Act, 1934, Regional Rural Banks specified by IFCI, or any other institution(s) directed by the Government of India. IFCI has the authority to remove any lending institution or MLI from the list of eligible institutions based on performance reviews.

(vii) ‘Material date’ denotes the date on which the eligible institution or MLI is obligated to pay the guarantee fee on the covered amount for the eligible borrower to IFCI.

(viii) ‘Non-Performing Assets’ represents an asset classified as non-performing based on the instructions and guidelines issued by the Reserve Bank of India.

(ix) ‘Primary security’ for a credit facility refers to assets created with the credit facility or existing unencumbered assets directly associated with the project or business for which the credit facility was extended.

(x) ‘Base Rate’ for a lending institution or MLI signifies the declared rate for the relevant time period or duration for which the credit facility has been provided.

(xi) ‘Scheme’ denotes the Credit Enhancement Guarantee Scheme for SCs.

(xii) ‘Tenure of guarantee cover’ indicates the maximum period of guarantee cover from the Guarantee start date, running until the agreed tenure of the term loan or Composite Term Loan, or loan termination date, whichever is earlier, with a maximum duration of 7 years.

(xiii) ‘Fund’ refers to the Credit Enhancement Guarantee Fund established by the Government of India with IFCI and held in NLA. Its purpose is to guarantee credit facilities extended by lending institutions or MLIs to eligible Scheduled Caste borrowers.

(xiv) ‘Composite loan’ represents a combination of term loan, working capital facility, and non-fund-based facility.

Scheme Name	Credit Enhancement Guarantee Scheme for the Scheduled Castes
Objective	Promote entrepreneurship among Scheduled Castes
Support Provided	Credit enhancement guarantees
Beneficiaries	Scheduled Caste entrepreneurs
Designated Institutions (MLIs)	Banks and Financial Institutions
Eligible Loans	Working Capital Loans, Term Loans, Composite Term Loans
Guarantee Amount	Minimum: ₹ 0.15 crore, Maximum: ₹ 5.00 crore
Focus	Innovation and growth technologies
Role of MLIs	Grant loans to SC entrepreneurs with the guarantee

Amount of Guarantee Cover

The amount of guarantee covered under the Credit Enhancement Guarantee Scheme for Scheduled Castes (CEGSSC) varies based on the sanctioned facility and the specific guidelines of the scheme. Here is a general illustration of the amounts under cover:

Minimum Guarantee Cover: The minimum guarantee cover under the scheme is around Rs. 0.15 crore

Maximum Guarantee Cover: The maximum guarantee cover available under the scheme is approximately Rs. 5. crore

Individual SC Entrepreneur: Individual SC entrepreneurs are eligible for a guarantee cover of a loan amount of up to Rs. 1 crore

Guarantee Cover Percentage: The guarantee cover percentage varies based on the sanctioned facility, ranging from 60% to 100% of the sanctioned facility

Objectives

The objectives of the Credit Enhancement Guarantee Scheme are aimed at:

Development: Supporting the development of various sectors and industries.

Objectives

The objectives of the Credit Enhancement Guarantee Scheme are aimed at:

Development: Supporting the development of various sectors and industries.

Employment Generation: Facilitating employment generation through enhanced access to credit.

Entrepreneurs: Encouraging entrepreneurship by providing credit support.

Inclusion: Promoting financial inclusion by extending credit facilities to a wider population

Employment Generation: Facilitating employment generation through enhanced access to credit.

Entrepreneurs: Encouraging entrepreneurship by providing credit support.

Inclusion: Promoting financial inclusion by extending credit facilities to a wider population.

Sector Coverage

The scheme encompasses a wide range of sectors to ensure inclusivity and diversity.

Sector	Examples
Manufacturing	Factory setups, production lines
Services	Consultancy, repair services
Retail	Shops, online selling
Agriculture	Farming, crop production
Healthcare	Clinics, pharmacies
Information Technology	Software development, IT services

This diverse sector inclusion promotes entrepreneurship in many economic fields.

Type of Borrower:

a) Registered Companies/Registered Partnership Firms with Scheduled Caste Promoter(s)

Companies and partnership firms that are registered and have more than 51% shareholdings with Scheduled Caste promoter(s) for at least 6 months, with management control in the hands of SC entrepreneurs/promoters, are eligible.

b) Registered Societies with Scheduled Caste Member(s)

Societies registered under the Society Act, engaged in approved business activities as per the prevailing policy of Banks/Financial Institutions, and having more than 51% shareholdings with Scheduled Caste member(s) for at least 6 months, with management control in the hands of SC entrepreneurs/SC members, are eligible.

c) Sole Proprietorship Firms of SC Entrepreneurs/Individual SC Entrepreneurs

Sole proprietorship firms owned by SC Entrepreneurs or individual SC Entrepreneurs are eligible.

Additional Points:

Priority to Scheduled Caste Promoters of Companies: Scheduled Caste promoters of registered companies will be given precedence over registered partnership firms and registered societies.
Non-dilution of Shareholdings: Scheduled Caste Promoter(s)/Partner(s)/Members should not dilute their shareholdings or equity during the loan tenure.

Lock-in Period

The Credit Enhancement Guarantee Scheme has a lock-in period.
The lock-in period is a specific duration.
During the lock-in period, the borrower must keep the loan amount received.
The purpose of the lock-in period is to ensure proper use of the funds.
It encourages long-term commitment and responsible loan utilisation.

Loan Coverage

The scheme offers different types of loans to SC entrepreneurs
The loans provided include working capital loans, term loans, and composite term loans.
Each loan type serves a specific purpose for SC entrepreneurs
Working capital loans help cover day-to-day operational expenses.
Term loans are meant for funding expansion projects.
Composite term loans can be used to purchase machinery and equipment.
The loans also help in acquiring necessary resources for business growth.
The variety of loan types ensures that SC borrowers can choose the most suitable financial support for their specific needs.

Guarantee Fee and Obligation of IFCI on the Guarantee:

The Credit Enhancement Guarantee Scheme requires a guarantee fee. Borrowers have to pay to access the credit enhancement guarantee.
The fee amount depends on factors like the loan amount and other relevant considerations.
The Industrial Finance Corporation of India (IFCI), the scheme’s administrator.
The guarantee assures the financial institution that a certain percentage of the loan will be covered.

Benefits:

The scheme offers several key benefits to both SC borrowers and financial institutions.

Easier Loans for SC Entrepreneurs:

The scheme helps people from Scheduled Castes get loans more easily, as they often find it hard to do so.

Banks Trust SC Borrowers More:

With the guarantee from the scheme, banks feel more confident in giving loans to SC entrepreneurs

Financial Inclusion and Entrepreneurship:

It supports the inclusion of Scheduled Caste communities in the financial system and encourages them to become entrepreneurs

Encourages Innovation:

The scheme helps SC entrepreneurs in adopting new and advanced technologies for their businesses.

Amount of Guarantee

The Credit Enhancement Guarantee Scheme specifies a minimum and maximum amount of guarantee that can be availed by SC borrowers The minimum guarantee amount typically starts at ₹ 0.15 crore, while the maximum guarantee amount is set at ₹ 5.00 crore. This range allows borrowers to access guarantees that align with their business requirements and potential loan amounts.

Tenure of Guarantee:

The guarantee has a specific time period when it is valid.
The guarantee protects the loan in case the borrower fails to repay.
The length of the guarantee period can vary depending on factors like the loan duration and repayment schedule.
The guarantee period provides security for both the borrower and the lender.
It ensures that there is a safety net throughout the loan repayment period.

Credit Enhancement Guarantee Scheme Eligibility Criteria

The Credit Enhancement Guarantee Scheme, offered by IFCI, provides credit enhancement to eligible entities against their loans. The eligibility criteria for this scheme include:

- 51% Shareholding: Entities with at least 51% shareholding are eligible for the credit enhancement guarantee scheme.
- Past 6 Months: The entity’s financial stability and performance over the past 6 months may be considered for eligibility assessment.
- IFCI Against the Loans: The credit enhancement guarantee is provided by IFCI against the loans of eligible entities.

Credit Enhancement Guarantee Scheme Application Process

The application process for the Credit Enhancement Guarantee Scheme typically involves the following stages:

Appraisal: Entities need to undergo an appraisal process to assess their eligibility and creditworthiness.

Sanction: Upon successful appraisal, the guarantee may be sanctioned by IFCI.

Disbursement: The guaranteed amount is disbursed to the entity as per the agreed terms.

Recovery: Entities are expected to adhere to the repayment schedule, and IFCI ensures the recovery of the guaranteed amount.

Bank Details: Entities may need to provide relevant bank details for the disbursement and repayment processes.

Documents Required

Entities applying for the Credit Enhancement Guarantee Scheme may need to submit the following documents:

Identity Proof: Valid identity proof such as an Aadhar card, PAN card, Voter ID or passport.

Address Proof: Documents verifying the entity’s address.

Business Registration Documents: Registration documents of the entity’s business.

Bank Statements: Statements reflecting the entity’s financial transactions and stability.

Repeat Credit Enhancement

SC borrowers who have used credit enhancement guarantees before can apply for them again in future loan applications.
This provision recognises that SC businesses have the potential to grow and expand.
It offers ongoing support to entrepreneurs who have already benefited from the scheme.

Allowing repeat credit enhancement encourages continuous entrepreneurial development among the Scheduled Castes.

Conclusion

The Credit Enhancement Guarantee Scheme supports SC entrepreneurs by providing loan guarantees, and Vakilsearch can assist with the application process and legal documentation.

FAQs

What types of sectors does the scheme cover?

The scheme covers the handicrafts and handloom sector, specifically targeting artisans and weavers in those industries.

Am I eligible for the course if I am transgender?

Yes, the scheme is inclusive and does not discriminate based on gender. Transgender individuals are eligible to apply and benefit from the scheme.

Which type of borrowers can be covered under the scheme?

The scheme covers individual borrowers who are artisans and weavers engaged in the handicrafts and handloom sector.

Are Individual and Sole Proprietorship firms eligible for coverage under the scheme?

Yes, both individual borrowers and sole proprietorship firms involved in the handicrafts and handloom sector are eligible for coverage under the scheme.

Are One Person Company firms eligible for coverage under the scheme?

Yes, One Person Company (OPC) firms operating in the handicrafts and handloom sector are eligible for coverage under the scheme.

Can the borrower approach any bank to get coverage under the scheme?

Yes, borrowers can approach any bank that is a designated financial institution under the scheme to avail themselves of the coverage and financial assistance.

Is working capital loan eligible to be covered under the scheme?

Yes, working capital loans are eligible to be covered under the scheme, providing financial support for the day-to-day operations of artisans and weavers.

What is the collateral security required to be given for the loan availed under the scheme?

The collateral security requirements for loans availed under the scheme are determined by the respective financial institution. The specific collateral needed may vary depending on the loan amount and the policies of the lending institution.

Is third-party guarantee required for the loan availed under the scheme?

The requirement for a third-party guarantee may vary based on the policies of the lending institution. Some financial institutions may ask for third-party guarantees, while others may not have such a requirement. It is advisable to check with the specific bank or financial institution for their guidelines on this matter.

What is the maximum quantum of loan provided in the scheme?

The scheme provides a maximum loan amount of ₹2 lakh, which includes a loan component of ₹1.8 lakh and a beneficiary's contribution of ₹20,000.

What kind of documentation is required for a bank to become a Member Lending Institution (MLI)?

The specific documentation required for a bank to become an MLI under the scheme may vary. It typically involves fulfilling eligibility criteria, providing relevant financial documents, and complying with the guidelines set by the scheme's governing authorities. Detailed information can be obtained from the scheme's official documentation or by contacting the relevant authorities.

What is the rate of interest charged to borrowers for loans covered under the scheme?

The rate of interest charged to borrowers for loans covered under the scheme may vary depending on the policies of the designated financial institutions. It is recommended to contact the specific bank or financial institution to inquire about the applicable interest rates.

What is the maximum tenure of the guarantee cover in the scheme?

The maximum tenure of the guarantee cover provided under the scheme is subject to the policies and terms set by the competent authorities. It is advisable to refer to the official scheme guidelines or contact the relevant authorities for accurate information regarding the guarantee cover tenure.

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