Emergency Credit Line Guarantee Scheme (ECLGS)
Source | Press Information Bureau
GS Paper II: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
Context: The Union Cabinet has given its approval for the Emergency Credit Line Guarantee Scheme (ECLGS) to enable additional funding of up to Rs. 3 lakh crore to eligible MSMEs.
Key Highlights of the Emergency Credit Line Guarantee Scheme (ECLGS)
The Emergency Credit Line Guarantee Scheme (ECLGS) has been formulated as a specific response to the unprecedented situation caused by COVID-19 and the consequent lockdown, which has severely impacted manufacturing and other activities in the MSME sector.
The Scheme aims at mitigating the economic distress being faced by MSMEs by providing them additional funding of up to Rs. 3 lakh crore in the form of a fully guaranteed emergency credit line.
The main objective of the Scheme is to provide an incentive to Member Lending Institutions (MLIs), i.e., Banks, Financial Institutions (FIs) and Non-Banking Financial Companies (NBFCs) to increase access to, and enable availability of additional funding facility to MSME borrowers, in view of the economic distress caused by the COVID-19 crisis.
This is planned to be done by providing them 100 % guarantee for any losses suffered by them due to non-repayment of the Guaranteed Emergency Credit Line (GECL) funding by borrowers.
Also Read: CHAMPIONS Portal for MSMEs
Salient Features of the Scheme
- Emergency Credit Line Guarantee Scheme (ECLGS) has been launched by the Union Cabinet in order to enable additional funding of up to Rs. 3 lakh crore to the eligible MSMEs and interested MUDRA borrowers.
- As part of the Scheme, 100% guarantee coverage will be provided by National Credit Guarantee Trustee Company Limited (NCGTC) for additional funding of up to Rs.3 lakh crore to eligible MSMEs and interested MUDRA borrowers, in the form of a Guaranteed Emergency Credit Line (GECL) facility.
- For this purpose, corpus of Rs. 41,600 crore shall be provided by Government of India spread over the current and the next three financial years.
Some Details about the Eligibility under the Scheme and Funding Mechanism
All the MSME borrower accounts with outstanding credit of up to Rs. 25 crore as on 29th February 2020, which were less than or equal to 60 days past due as on that date, (i.e., regular, SMA 0 and SMA 1 accounts), and those with an annual turnover of up to Rs. 100 crore would be eligible for GECL funding under the Scheme.
- The amount of GECL funding to eligible MSME borrowers either in the form of additional working capital term loans (in case of banks and FIs), or additional term loans (in case of NBFCs) would be up to 20% of their entire outstanding credit up to Rs. 25 crore as on 29th February, 2020.
- The entire funding provided under GECL shall be provided with a 100% credit guarantee by National Credit Guarantee Trustee Company Limited (NCGTC) to Member Lending Institutions (MLIs) under Scheme.
- Tenor of loan under Scheme shall be 4 years with moratorium period of one year on the principal amount.
- No Guarantee Fee shall be charged by NCGTC from the Member Lending Institutions (MLIs) under the Scheme.
- Interest rates under the Scheme shall be capped at 9.25% for banks and FIs, and at 14% for NBFCs.
- Scheme would be applicable to all loans sanctioned under Guaranteed Emergency Credit Line (GECL) facility during the period from the date of announcement of the Scheme to 31st October 2020, or till an amount of Rs 3,00,000 crore is sanctioned under the GECL, whichever is earlier.
How this Emergency Credit Line Guarantee Scheme would be helpful for MSMEs?
Keeping in mind the critical role played by the MSME sector in the economy and also in providing employment, the proposed Scheme is expected to provide much needed relief to the sector by incentivizing MLIs to provide additional credit of up to Rs.3 lakh crore to the sector at low cost.
- This will enable MSMEs to meet their operational liabilities and restart their businesses.
- By supporting MSMEs to continue functioning during the current unprecedented situation, the Scheme is also expected to have a positive impact on the economy and support its revival.
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