CGTMSE — the collateral-free MSME loan scheme
CGTMSE lets banks lend up to ₹5 crore to a Micro or Small Enterprise without asking for property or third-party collateral. The Government of India + SIDBI guarantee covers 75–85% of the default risk. This guide explains how the scheme works, who’s eligible, and what the bank’s actual protection is.
By Aditi Menon·Editor-in-Chief·reviewed by editor
Last updated: 15 June 2025
What CGTMSE is and how it works
CGTMSE was set up in 2000 by the Ministry of MSME and SIDBI. It runs a Credit Guarantee Fund. When a bank makes a collateral-free loan to an eligible MSME under the scheme, the bank pays a small annual guarantee fee (0.37% to 1.35% of the sanctioned amount, tiered by amount). If the borrower defaults, the bank first exhausts primary security recovery, then files a claim with CGTMSE for the guaranteed portion.
For the borrower, CGTMSE simply means the bank can approve the loan without asking for property, FDs, or third-party guarantee — which is the single biggest barrier to MSME lending.
Coverage percentage and loan cap
| Borrower category | Guarantee cover | Notes |
|---|---|---|
| Micro enterprise (up to ₹5 lakh) | 85% | Highest cover for the smallest borrower |
| Standard borrower (₹5 lakh – ₹5 crore) | 75% | Uniform for most enterprises |
| Woman entrepreneur | 80% | Higher cover for women-owned enterprises |
| NER / hilly states / SC/ST | 80% | Regional and social inclusion boost |
| Aspirational Districts | 85% | Extra push for identified underserved districts |
| MSE Retail Traders | 75% | Added to the scope in recent revisions |
Who is eligible
- Any Micro or Small Enterprise (as defined by the MSMED Act) engaged in manufacturing or providing services or in retail trading.
- The enterprise must be registered on the Udyam Registration portal.
- The loan must be a fund-based facility (term loan, cash credit, working capital) or a non-fund-based facility (letter of credit, bank guarantee).
- Loan amount up to ₹5 crore per borrower.
- The lending bank must be an eligible institution enrolled with CGTMSE — all scheduled commercial banks, RRBs, small finance banks, and select NBFCs are enrolled.
Who is NOT eligible
- Medium and Large enterprises — CGTMSE covers only Micro & Small.
- Educational institutions, training institutes.
- Self-Help Groups (SHGs).
- Agriculture (including primary agriculture activities).
- Retail trade above the CGTMSE cap.
- Any borrower with a prior default at any bank or NBFC.
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Guarantee fee — what the bank pays (and passes on)
CGTMSE charges the lender an Annual Guarantee Fee (AGF) on the outstanding portion of the loan. Rates are tiered by loan amount:
• Up to ₹10 lakh: 0.37% p.a.
• ₹10 lakh to ₹50 lakh: 0.55% p.a.
• ₹50 lakh to ₹2 crore: 0.60% p.a.
• Above ₹2 crore: 1.35% p.a.
The bank almost always passes this fee to the borrower, either as an explicit line item on the sanction letter or built into the interest rate. Always ask for a breakdown of your total cost of borrowing so you know what portion is CGTMSE fee and what is bank margin.
How the loan process actually looks
- 1. You approach an eligible bank with your business plan, financials, and Udyam registration.
- 2. The bank underwrites your application on standard MSME parameters (business vintage, ITR, bank statements, credit score of promoters).
- 3. On approval, the bank tags the loan under the CGTMSE scheme in its internal system.
- 4. The bank pays the Annual Guarantee Fee to CGTMSE (usually recovered from you at disbursal).
- 5. Disbursal happens as usual. You now have a collateral-free loan.
- 6. If you default: the bank tries to recover from primary security (your inventory, receivables). Whatever remains is claimed from CGTMSE within 2 years of the account becoming NPA.
What CGTMSE does NOT do
The single biggest borrower misunderstanding: CGTMSE guarantees the LENDER, not YOU. If your business fails and you default, the bank recovers 75–85% from CGTMSE, but you are still legally liable to repay the full amount. The bank’s recovery agents will still chase you. Your credit score still drops. Your personal assets can still be pursued in a proprietorship or partnership.
CGTMSE improves access to credit for MSMEs. It does not reduce your personal liability once the loan is taken.
Frequently Asked Questions
Sources & references
- CGTMSE — official website and scheme documents — Credit Guarantee Fund Trust for Micro & Small Enterprises
- Ministry of MSME — CGTMSE scheme circulars — Ministry of Micro, Small & Medium Enterprises, GoI
- Udyam Registration Portal — Ministry of MSME, GoI
Rates, fees, eligibility, and product terms cited on this page reflect the sources above at the time of publication and may have changed since. Always verify directly with the lender or regulator.