Under the Union Budget 2022-23, the government has extended the ECLGS till March 2023. Read the entire article for further details.
According to the Scheme, National Credit Guarantee Trustee Company Limited (NCGTC) will provide 100% guarantee coverage for additional funding up to Rs. 3 lakh crore to qualified MSMEs and interested MUDRA borrowers in the form of a Guaranteed Emergency Credit Line (GECL) facility.
As of March 2022, 117.87 lakh enterprises had received 100% guaranteed collateral-free loans through the Emergency Credit Line Guarantee Scheme (ECLGS), of which 95.21% were MSMEs.
What is ECLGS?
The Emergency Credit Line Guarantee Scheme (ECLGS) was introduced in May 2020 as a component of the Aatmanirbhar Bharat Abhiyaan.
ECLGS falls under the operational purview of the Department of Financial Services (DFS), Ministry of Finance.
The scheme was introduced to assist eligible Micro, Small, and Medium Enterprises (MSMEs) and other eligible business enterprises in fulfilling their operational liabilities and resuming their businesses in the context of the interruption created by the COVID-19 pandemic.
Objective of ECLGS
The scheme was launched as a special scheme in view of the Covid crisis.
The scheme provides 100% guarantee coverage to Banks and NBFCs that enables them to extend the emergency credit facility to business enterprises and MSMEs.
Its main purpose is to provide additional term loans/ additional working capital requirements.
Salient Features of the Scheme
The amount of loan extended to the business enterprises/MSMEs should be 20% of the total outstanding loans.
100% guarantee coverage is provided for the additional fund sanctioned under the Emergency Credit Line Scheme.
The interest rate charged is capped at 9.25% for the banks and 14% for the NBFCs.
Tenure of load will be 4 years from the date of disbursement and the moratorium period on the principle amount is 12 months i.e., 1 year.
There is no guarantee fee to be charged by Member Lending Institutions (MLIs) or National Credit Guarantee Trustee Company (NCGTC).
Eligible Borrowers Under ECLGS
In light of the hardship brought on by the COVID-19 crisis, the Emergency Credit Line Guarantee Scheme (ECLGS) was introduced as a component of the Atma Nirbhar Bharat Package.
Its goal is to assist businesses, particularly MSMEs, in meeting their operational obligations and resuming operations by offering Member Lending Institutions (MLIs) a 100% guarantee against any losses they may incur as a result of borrowers failing to repay the ECLGS funding.
The following are the requirements to be eligible for credit under ECLGS:
For ECLGS 1.0
MSME units, Business Enterprises, Mudra Borrowers, and individuals are eligible under the scheme.
It refers to a program that offers member lending institutions a 100% guarantee on eligible credit facilities they extend to their borrowers if their total credit outstanding (fund-based only) across all lending institutions as of February 29, 2020, was up to Rs. 50 crore and their days past due were up to 60 days, respectively.
For ECLGS 2.0
It offers member lending institutions a 100 percent guarantee on any eligible credit facilities they extend to their borrowers in the 26 sectors named by the Kamath Committee on Resolution Framework in its report from April 9, 2020, and the healthcare sector.
Under this, the total credit outstanding (fund-based only) across all lending institutions and days past due as of February 29, 2020, was higher than 50 crore rupees but not more than 500 crore rupees.
For ECLGS 3.0
It refers to a program that will guarantee 100% of the credit facilities extended by member lending institutions to their borrowers in the hospitality and related sectors (hotels and restaurants, marriage halls, canteens, etc.), travel and tourism, travel agents, tour operators, adventure or heritage facilities, leisure and sporting, civil aviation sector, etc.
For ECLGS 4.0
It refers to a program that gives member lending institutions a 100% guarantee on any eligible credit facility they offer to qualified hospitals, nursing homes, clinics, medical colleges, and units engaged in the production of liquid oxygen, oxygen cylinders, etc.
The loan instrument for which the Scheme will offer a guarantee will be known as the “Guaranteed Emergency Credit Line (GECL)”.
Member Lending Institutions (MLIs)
“Member Lending Institutions” or “Lending Institutions” refers to Scheduled Commercial Banks, Regional Rural Banks (RRBs), Small Finance Banks (SFBs), Cooperative Banks, Non-Banking Finance Companies (NBFCs), Micro Finance Institutions (MFIs), and SHG Banks formed in several States/UTs.
What is the National Credit Guarantee Trustee Company (NCGTC)?
On March 28, 2014, NCGTC was established in accordance with the Indian Companies Act of 1956.
The Department of Financial Services, Ministry of Finance, Government of India established a common trustee business with the name and designation National Credit Guarantee Trustee Company Ltd (NCGTC) in order to establish several credit guarantee funds.
Among other things, NCGTC serves as a common trustee company for managing and operating different credit guarantee trust funds.
Why ECLGS is Important for MSMEs?
The MSMEs sector has been one of the most susceptible sectors throughout the pandemic due to its size, scope of operations, and accessibility to financial resources. Studies and polls revealed that 70% of enterprises continued to experience disruptions until August 2020 as a result of the nationwide lockdown that was enforced in April 2020.
According to statistics, approximately 40% of firms experienced service interruptions even after progressive unlocking up until the end of February 2021. In comparison to a 46% reduction in business volume during the nationwide lockdown in 2020, an average 11% decline in the business volume of Indian MSMEs has been seen in 2021.
From March 2020 to May 2020, the export-oriented garment manufacturing businesses had a loss of over Rs. 150 crores. In the international market, the loss to India’s leather industries has been estimated at Rs. 11,210 crores. All India Manufacturers Organization did a poll on MSMEs and found that the self-employed MSMEs, who make up 35% of the sector, have already begun winding up their operations because there is no chance of an economic recovery.
The scheme came into effect to benefit the businesses in our country. The loan is provided to eligible Business Enterprises/Micro, Small, and Medium Enterprise (MSME) borrowers, including interested PMMY borrowers in the form of an additional term loan/working capital term loan facility and/or non-fund-based facility in case of banks, and Financial Institutions and additional term loan facility in case of NBFCs, from all Member Lending Institutions (MLIs), to help the stressed businesses in view of Covid 19 crisis.
Article Written By: Priti Raj