GREETINGS

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GREETINGS from INDIA Credit Guarantee Fund
Trust for Micro and Small Enterprises
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Credit Guarantee Management under the Economic
Crisis and Measures to Boost Economy Presentat
ion by CGTMSE Team - India August 10,
2009 Bangkok, Thailand
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CGTMSE

• Set up as a Trust in August, 2000 and
  administered by a Board of Trustees
• Government of India and Small Industries
  Development Bank of India (SIDBI) the settlors
  Contribution ratio 4 1
• Initial Corpus USD 26.27 million Present
  Corpus USD 379.16 million Committed Corpus
  USD 525.43 million

_at_ 1 USD 47.58 INR
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CGTMSE - Objectives

• Shift from collateral to merit based lending
• Act as catalyst for entrepreneurship promotion
• Facilitate institutional credit flow to MSE
  sector
• Address growth constraints of MSE sector
• Enable financial inclusion / employment
  generation
• Revive confidence in credit guarantee mechanism

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CGS - Operations

• Operated through Banks / Lending Institutions
  registered as Member Lending Institutions (MLIs)
• Scheduled Commercial Banks / select Regional
  Rural Banks (RRBs) / other lending institutions
  as approved by Ministry of MSME eligible to
  register as MLIs
• 97 Banks / RRBs / other lending institutions
  registered as MLIs with CGTMSE
• Operations done through web-based B2B E-Business
  software

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CGS Main Features

• Micro Small Enterprises as per MSMED Act
  eligible
• Both Manufacturing and Service sectors covered
• Credit Facility upto USD 0.20 million covered
• All fund / non-fund based facilities covered
• Maximum Cover of upto 85 of credit facility

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CGS - Benefits

• Credit Guarantee Scheme - A tool for
• Widening of credit portfolio
• Better management of risk
• Faster recovery of dues
• Enhancement of profitability

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CGS Benefits

• Entrepreneurs can access institutional credit for
  their projects, even if they cannot provide
  collateral, very helpful, especially for first
  time entrepreneurs and start-ups
• Quicker dispensation of credit due to time saved
  on security creation / Title related issues of
  collaterals
• Reduction in waiting period for recovery through
  legal process, realising the time value of money
  with hassle free quick recovery of major
  portion of defaulted amount
• In case of collateral, it is Banks
  responsibility to insure / secure the property
  when asset is taken over
• Collateral-free loans ensure better appraisal of
  projects
• Overall significant saving in Time Energy cost
  of Banks human resources

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CGS Cost of Cover
MLIs at their discretion may pass on the cost of
Guarantee Cover to the borrowers. However, Trust
collects the Guarantee / Service Fee from MLIs
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Tenure of Guarantee Cover

• Tenure of Guarantee Cover for Term Credit,
  Combined Working Capital Term Credit and
  Composite Credit is tenure of Term Credit /
  Composite Credit
• If tenure of Term Loan is 5 years, tenure of
  working capital will also be 5 years. After 5
  years, if guarantee cover is to be continued for
  working capital, application for renewal to be
  lodged online
• Where Working Capital facility alone is covered,
  the tenure is for a block of five years.
  Thereafter, MLI should apply for renewal of
  Guarantee Cover

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Extent of Guarantee Cover
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Claim Settlement

• Two stage claim settlement process
• First installment of 75 of guaranteed portion of
  Amount in Default will be paid within 30 days of
  receipt of complete information
• Interest at prevailing Bank Rate will be paid in
  case of delay beyond 30 days
• Second installment shall be paid on conclusion of
  recovery proceedings
• On conclusion of recovery proceedings, final loss
  is shared by CGTMSE and MLI, in the ratio ranging
  from 85 15 to 62.5 37.5, as the case may be

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Yearwise Performance
(As on July 31, 2009)
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Guarantees approved
Data for FY2010 Upto July 31, 2009
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Average Size of Guarantee
Value in USD
(As on July 31, 2009)
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Slab-wise distribution
(As on July 31, 2009)
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Sector-wise distribution
Top 5 Sectors (As on July 31, 2009)
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Overall Impact (As on July 31, 2009)
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Guarantee Management Portfolio Analysis

• To undertake a portfolio review so that
  underlying risk characteristics can be identified
  and means for effective hedging can be adopted.
• To specify the data that should be collected for
  effective risk management process.
• To suggest a better claim estimation methodology
  and the base of discriminatory risk pricing.
• Examine the prospect of re-insurance of the
  portfolio of the Trust.
• Some information like summary of major loan
  types, average maturity, business activities
  financed, risk and exposure taken by the Trust
  and non-performing loans are required for a more
  valuable analysis leading to better policy
  formulation and ensure its sustainability.

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Guarantee Portfolio Re-insurance

• Re-insurance or re-guarantee of portfolio is a
  good way for eluding part of the Trusts risk
  associated with performance of MSEs.
• Exploration of risk sharing mechanism with an
  insurance company (national as well as
  international) will prove valuable for Trust and
  would help it to sustain its financial viability.
  
• Pre-requisites for re-insurance is a proficient
  risk management system so that insurance company
  can complete its due diligence. A strong
  database would be of immense help for this.

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Economic Crisis Impact on MSEs

• Slackness in institutional credit flow to Micro
  and Small Enterprises (MSEs) Lack of Demand
  Domestic / Exports Piling of Inventory Increase
  in cost of raw materials Closure of MSE units
  Decrease in employment opportunities
• However, the initial impact of the sub-prime
  crisis on the Indian economy was rather muted.
  The Reserve Bank of India had to sterilise the
  liquidity impact of large foreign exchange
  purchases through a series of measures like
  insurance in the cash reserve ratio and issuances
  under the Market Stabilisation Scheme.
• The direct effect of the sub-prime crisis on
  Indian banks / financial sector was almost
  negligible because of limited exposure to complex
  derivatives and other prudential policies put in
  place by the Reserve Bank of India. The
  relatively lower presence of foreign banks in the
  Indian banking sector also minimised the direct
  impact on the domestic economy.

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Measures to Boost MSEs

• The GoI has been concerned about the impact of
  global financial crisis on the Indian economy and
  a number of steps have been taken to deal with
  this problem.
• The GoI Schemes are one part of the Governments
  measures to ensure the stability of the financial
  system and to protect ordinary savers, borrowers
  and business.
• The government announced major tax cuts across
  the board to boost demand and allocated
  additional funds and incentives for experts,
  housing textile and infrastructure to stimulate
  the economy, hit by the global financial crisis.

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Measures to Boost MSEs

• Increase in ceiling / extent of guarantee cover
  to boost collateral-free lending to micro and
  small enterprises that are facing a credit
  crunch, the Government doubled the current
  guarantee cover for loans to upto USD 0.20
  million from the earlier limit of USD 0.10
  million
• Widening the scope of coverage
• Introduction of new Credit Guarantee Products
  Portfolio Coverage (PCGS entire portfolio and
  upto USD 0.01 million)
• Reduction in lock-in period
• Sensitisation of potential participants
• Relaxation for MSE units in Handicrafts Sector
  Creation of a Special fund contributed by GoI.
  Accordingly, MSEs in Handicrafts Sector is
  getting coverage without GF / ASF

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THANK YOU ALL
www.cgtmse.in