What does this credit guarantee scheme mean for MSMEs?
Key takeaways:
ECLGS offers 100% guaranteed coverage against defaults to banks and NBFCs who extend emergency credit to MSMEs
The Rs 3-lakh-crore scheme has helped incentivise member lending institutions (MLIs) to provide low-cost credit to MSMEs for their short-term operational needs.
The scheme has been extended to 30.09.2021 or till the guarantees for an amount of Rs.3 lakh crore are issued. The disbursement under the scheme is also permitted up to 31.12.2021(1).
ECLGS stands for Emergency Credit Line Guarantee Scheme. Under this, the government of India offers banks and non-banking financial companies (NBFCs) 100% guarantee against defaults on the emergency credit they extend to micro, small and medium enterprises (MSMEs).
The Rs 3-lakh-crore scheme was launched last year to help the MSME sector raise emergency finance to tide over the crisis induced by the pandemic. By providing a 100% guarantee, Through ECLGS, the Government aims to incentivise member lending institutions (MLIs) to provide low-cost credit to MSMEs for their short-term operational needs.
The emergency credit scheme has been revised and extended through ECLGS 1.0, 2.0, 3.0 and 4.0 The scheme’s validity has been extended until September 30, 2021, and the last date of disbursement of funds has been set as December 31, 2021
ECLGS interest rate and other features
MSMEs can get a term loan at an interest rate of 14% per annum under ECLGS. The loan is available only to existing customers of MLIs without any additional collateral. Other features include: zero processing fees and zero prepayment or foreclosure charges.
As an MSME you can get a term loan at fixed or floating interest rate. The interest rate has been capped at 9.25% for banks and 14% for NBFCs. The loan is available to existing customers of MLIs without the need for additional collateral with many MLIs even incentivising customers via lucrative offers.