Availability of bank credit without the hassles of collaterals/ third party guarantees would be a major source of support to the first generation entrepreneurs to realise their dream of setting up a unit of their own in the Small Scale Industries (SSI) sector. Keeping this objective in view, Government of India, in the Ministry of SSI, launched Credit Guarantee Scheme so as to strengthen a good credit. To operationalise the scheme, Credit Guarantee Fund Trust for Micro and Small Enterprises(CGTMSE) was set up by GOI and SIDBI.
The lender should give importance to project viability and secure his loan purely on the primary security of the assets financed. The other objective is that the lender availing guarantee facility should endeavor to give composite loans to the borrowers so that both term loan and working capital facilities are obtained by the borrowers from a single agency. The Guarantee scheme seeks to assure the lender that, in the event of an SSI unit, which availed collateral free credit facilities, failing to discharge its liabilities to the lender, the Guarantee Trust would make good the loss incurred by the lender up to 75 per cent of the credit facility.