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 Credit Guarantee Scheme for Startups

Focus: GS III: Indian Economy

Why in News?

Recently, the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry has notified the credit guarantee scheme for start-ups.

About Credit Guarantee Scheme for Startups (CGSS)

  • The program’s goal is to provide credit guarantees for loans made by Member Institutions (MIs) to qualified borrowers who are startups.
    • Financial intermediaries (banks, financial institutions, and non-banking financial companies) that participate in lending or investing and meet the eligibility requirements outlined in the Scheme are considered MIs.
  • This plan would aid in supplying start-ups with the crucial debt financing without the use of any collateral.
  • The Scheme would provide transaction-based and umbrella-based credit guarantee coverage.
  • The maximum exposure to any one instance would be Rs. 10 crore, or the actual amount of unpaid credit, whichever is smaller.
  • In respect of transaction-based guarantee cover, the guarantee cover is obtained by the MIs on a single eligible borrower basis.
  • Transaction based guarantees will promote lending by Banks/ NBFCs to eligible startups.
  • The umbrella-based guarantee cover will provide guarantee to Venture Debt Funds (VDF) registered under Alternative Investment Funds (AIF) regulations of Securities and Exchange Board of India (SEBI) .
  • To assist businesses who have been severely harmed by the pandemic and will now suffer even more from the rising interest rate environment, when it is unlikely that new business owners will have easy access to capital.

May 2024