Skip to content

CS Professional · Banking and Insurance - Laws and Practice · Various Government Schemes

Meera Textiles, a micro enterprise in Surat, wants a collateral-free term loan from a scheduled commercial bank to buy machinery. The bank is considering cover under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). What is the main purpose of this guarantee cover?

CGTMSE gives lenders a credit guarantee against default on collateral-free or third-party-guarantee-free loans to eligible micro and small enterprises. It protects the lender, encouraging unsecured lending. It is not an interest subsidy, loan waiver, or refinance facility for the bank's portfolio.

  1. ATo give the lender a guarantee against default on collateral-free or third-party-guarantee-free credit to eligible micro and small enterprisesCorrect
  2. BTo pay the borrower an interest subsidy on every rupee borrowed
  3. CTo make the borrower exempt from repaying the principal if the business makes a loss
  4. DTo refinance the bank's entire priority sector portfolio at a concessional rate

Explanation

CGTMSE exists so that member lending institutions can lend to eligible micro and small enterprises without collateral or third-party guarantee, with the Trust covering a portion of default loss. It is a guarantee to the lender, not a subsidy or loan waiver for the borrower. It does not refinance a bank's portfolio.

Did you get it right without looking?

One question tells you little. A timed set on Various Government Schemes shows your real accuracy, how long you take and where you lose marks.

Practise Various Government SchemesFree diagnostic mock

More Various Government Schemes questions