Emergency Credit Guarantee Scheme

What’s in today’s article?

• Why in news?
• What is Emergency Credit Line Guarantee Scheme (ECLGS)?
• What is the purpose of ECLGS?
• How has ECLGS performed so far?
• What is MSME?
• News Summary: Emergency credit guarantee scheme 
• What are the key highlights of the SBI report?

Why in news?

• According to an SBI Research analysis, at least 14.6 lakh micro, small and medium enterprises (MSMEs) accounts were saved due to the Emergency Credit Line Guarantee Scheme (ECLGS).

What is Emergency Credit Line Guarantee Scheme (ECLGS)?

• The ECLGS was unveiled as part of the comprehensive package announced by Finance Ministry. 
  • Emergency Credit Line Guarantee Scheme (ECLGS) was launched in different phases – ECLGS 1.0, ECLGS 2.0, ECLGS 3.0, ECLGS 4.0.
• This scheme was launched to aid Micro, Small and Medium Enterprises (MSMEs) sector in view of the economic distress caused by the COVID-19 pandemic .
• In different phases, the scope of this scheme was increased to include multiple sectors.
• The scheme is under the operational domain of Ministry of Finance, Department of Financial Services (DFS).
  • National Credit Guarantee Trustee Company Ltd (NCGTC) has been set up as a company by the Union  Ministry of Finance to manage and provide guarantees to these loans.

What is the purpose of ECLGS?

• The ECLGS aims to provide 100 percent guaranteed coverage to the banks, non-banking financial institutions (NBFCs) and other lending institutions. 
• The idea was to enable these lending institutions to extend emergency credit to business entities that have suffered due to the Covid-19 pandemic and are struggling to meet their working capital requirements.

‹ ›

How has ECLGS performed so far? 

• The overall ceiling initially announced for ECLGS was Rs 3 lakh crore which was subsequently enhanced to Rs 4.5 lakh crore. 
  • In August 2022, the govt increased the ceiling to 5 lakh crore.
• However, ECLGS is a demand driven scheme. Hence, sanctions/disbursements are made by lending institutions based on assessment of borrower’s requirement and their eligibility.
• As of August 5, 2022, loans of ₹3.67 lakh crore have already been sanctioned under the scheme. 
  • More than 1.14 crore borrowers have been issued guarantee under the scheme.

What is MSME?

Image Caption: MSME Definition

News Summary: Emergency credit guarantee scheme 

What are the key highlights of the SBI report?

•  Impact of the scheme on MSME units & employment
  • At least 14.6 lakh MSMEs accounts were saved due to the ECLGS, thus saving around 6.6 crores of jobs till November, 2022.
•  Size of total MSME loan accounts which were saved from slipping into NPA
  • In absolute terms, MSME loan accounts worth Rs 2.2 lakh crore have improved since the inception of ECLGS for the entire banking industry. 
  • This means that around 12 per cent of the outstanding MSME credit has been saved from slipping into NPA because of this scheme.
•  MSME units becoming larger
  • The report noted that there is evidence of MSME units becoming larger with several units crossing the threshold of Rs 250-crore turnover.
  • This reveals integration of MSME units with a larger value chain.
•  Urgent need to revamp the Credit Guarantee Scheme for the MSME sector
  • There is an urgent need to revamp the Credit Guarantee Scheme for the MSME sector.
    • To catalyse flow of institutional credit to MSMEs, govt has set up Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).
  • In this regard, the report said that the U.S. Small Business Administration (US-SBA) could be as template.
•  Increase the maximum loan amount for coverage under CGTMSE
  • The maximum loan amount for coverage under CGTMSE may be increased from Rs 2 crore to Rs 5 crore for all activities under manufacturing, services and trade sectors.
  • Guarantee coverage for the units having women promoters should be increased to 100% to give fillip to women entrepreneurship.
•  Other suggestions
  • It proposed increasing claims settlement to the extent of 10 times of the guarantee fee paid by the banks.
  • It also emphasised on complete end-to-end digital platform to ensure real time sanction, disbursement and claim settlement for the guaranteed portfolio.

Q1) What is meant by Priority Sector Lending?

 Priority sector lending includes only those sectors as part of the priority sector, that impact large sections of the population, the weaker sections and the sectors which are employment-intensive such as agriculture, and Micro and Small enterprises.

Q2) What is Cluster financing?

 Cluster based approach to lending is intended to provide a full-service approach to cater to the diverse needs of the MSE sector which may be achieved through extending banking services to recognized MSE clusters. A cluster-based approach may be more beneficial (a) in dealing with well-defined and recognized groups (b) availability of appropriate information for risk assessment (c) monitoring by the lending institutions and (d) reduction in costs.

Source: ECLGS bailed out 14.6 lakh MSMEs, says SBI report | PIB | CGTMSE | Ministry of MSME