In this insightful masterclass from the RizingTV Digital Renaissance Summit 2025, Shweta Shetty, Assistant Manager at CGTMSE, unpacks how technology is reshaping access to finance for India’s micro and small enterprises. From collateral-free credit and real-time digital guarantees to inclusive lending frameworks for women-led and informal businesses—this session offers a front-row seat to the financial transformation sweeping through India. If you’re a founder, policymaker, or fintech professional, this is a conversation you can’t afford to miss.
At the recent national summit on financial inclusion and digital transformation, a standout topic emerged—one with transformative potential for the Indian economy: the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). This institutional backbone is poised to reshape how India’s smallest businesses access capital. As India celebrates MSME Day, one fact remains clear: the heartbeat of India’s economy—its micro, small, and medium enterprises—still faces a crippling barrier in its growth journey—access to credit. CGTMSE is neither a lender nor a venture capitalist. It does not disburse loans or invest in businesses. Rather it is the role of a credit guarantor that it plays. Founded in July 2000 it was born through a collaboration between the Ministry of MSME, the Small Industries Development Bank of India (SIDBI), and the GoI. CGTMSE’s mission is to provide collateral-free credit access to MSEs via a broad network of Member Lending Institutions. These include scheduled commercial banks, NBFCs, regional rural banks, cooperative banks, and micro-finance institutions. With a HQ in Mumbai, CGTMSE operates with a small team of just 45 core members, yet it has enabled loan guarantees in excess of ₹3 lakh crore as of 2025.
The challenge it addresses is fundamental but universal. Most MSMEs, particularly those run by fresher or grassroots businesspersons, lack the collateral asked for by traditional lending institutes. Lenders, governed by cautious risk assessment procedures, are hesitant to lend in the absence of security. CGTMSE brings about risk mitigation, presenting a partial guarantee ranging from 75% to 90% of the loan amount. Thereby largely absorbing the risk borne by lenders. Like this a credit guarantee takes place and opens the portal to formal financial systems for ventures that would else remain marginalized.
In recent years, CGTMSE has undergone significant reforms to improve efficiency and inclusiveness. One of the most notable changes is the expansion of the coverage ceiling. Loans backed under CGTMSE are now available up to ₹10 crore for banks and ₹5 crore for NBFCs— an increase from the previous limit of ₹2 crore. Additionally, the guarantee fees—which were once seen as prohibitively high—have been substantially lowered. Today, annual fees range from just 0.37% to 0.8%, depending on the loan size and type, down from a peak of 1.2%. This has made the scheme more affordable and appealing to both borrowers and lenders.
The scope of eligible enterprises has also widened. CGTMSE guarantees are now extended to a wide range of sectors, including manufacturing, services, retail, wholesale, and education-related ventures. However, it’s important to note that self-help groups and agriculture-related activities remain outside the scheme’s coverage. In a bid to enhance equity, new policy initiatives have introduced tailored benefits for women-led businesses, trans-led enterprises, and businesses operating in aspirational districts. These ventures are eligible for up to 90% guarantee coverage, and in some cases, enjoy reduced guarantee fees of up to 30%. These measures reflect a shift toward a more inclusive and socially responsive credit framework.
Digital integration has revolutionized the way CGTMSE operates. In a move to enhance transparency, speed, and scale, the Trust has embraced API-based data integration. This change eliminates the need for manual uploads and allows lenders to process over 20,000 guarantees per day efficiently. Furthermore, responding to long-standing demands from banks, CGTMSE has scrapped the fixed window requirement for registering loans under the scheme. Now, any loan with a standard, non-defaulted record for at least a year can be covered under the guarantee program, irrespective of when it was sanctioned.
Another forward-looking initiative under CGTMSE is its special scheme targeting informal micro-enterprises (IMEs)—especially those operating without GST registration. These businesses can now secure loans of up to ₹20 lakh without pledging any collateral, supported by a CGTMSE guarantee of up to 85%. What sets this scheme apart is its simplified claim settlement process. In case of borrower default, the lending institution can receive a one-time settlement from CGTMSE without initiating lengthy legal proceedings—ensuring faster recovery and less administrative friction.
On the legal front, reforms have made the process more borrower- and lender-friendly. For loans under ₹10 lakh, legal action is no longer mandatory before claims can be processed. For larger amounts, basic legal proceedings such as arbitration or resolution through Lok Adalat suffice. This streamlining is expected to not only reduce delays but also lower legal expenses for lenders.
For startups, particularly those in Tier 2 and Tier 3 cities, CGTMSE is an untapped resource. Many early-stage founders are unaware of the scheme or falsely believe that eligibility requires years of operational history and audited financials. At the recent summit, speakers made it abundantly clear: this is a myth. What matters most is clean, complete documentation and a proactive approach to MLIs. Entrepreneurs need to directly request that their loans be covered under CGTMSE. This small but vital step could determine whether they gain access to crucial credit.
It’s important to remember that CGTMSE does not interact directly with entrepreneurs. It is the onus of the lending institution—be it a bank, NBFC, or cooperative lender—to apply for the guarantee coverage. Entrepreneurs must therefore approach lenders strategically: with a sound loan proposal, verified documentation, and a formal request for inclusion under the CGTMSE umbrella. Even pre-revenue startups or firms with modest financials can apply, as long as their business case and intent are strong. India’s long-term economic resilience hinges on the success of its MSMEs. CGTMSE is laying the foundation for a more inclusive, decentralized, and entrepreneur-friendly financial system.
For lenders, it provides a government-backed cushion against credit risk. For borrowers, it unlocks capital that once seemed out of reach. For the nation, it ensures that entrepreneurship is not confined to metro cities or large corporations—it reaches the remotest corners of Bharat.The ongoing digital transformation of CGTMSE promises even greater efficiency. As APIs become standard and awareness spreads, participation is expected to surge. Lending institutions will increasingly automate their submissions, while entrepreneurs will benefit from faster loan processing and improved communication. The scheme’s expansion is not just a bureaucratic milestone—it’s a signal of India’s commitment to bottom-up economic growth.
At RizingTV, we remain committed to following these developments closely. The intersection of CGTMSE with digital lending, fintech innovation, and MSME empowerment presents a compelling narrative for India’s economic future. Our upcoming editions will continue to spotlight such catalytic reforms and share ground-level insights from entrepreneurs navigating this evolving landscape.
Let’s work toward building a credit ecosystem where every good idea, no matter how small, gets a fair shot at success.
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Watch the full episode on: https://youtu.be/ASz-YyxxYhw
