Financing of MSMEs and Role of Credit Guarantee Fund for MSMEs sector

Abstract

MSMEs play an important role in employment generation in India. MSMEs are required in a country like India where the population is more and labor-intensive techniques are used. MSMEs are established in rural and economically weaker districts therefore regional development as well as equal distribution of income may be achieved. The small sector industry was renamed as MSME’s micro small and medium enterprises after the MSMEs act 2006. Timely access to finance is one of the main constraints in the growth of any industry because collateral security/guarantee-free loans are not provided by financial institutions. Credit guarantee funds are launched by the Government of India for providing collateral security funds to micro small and medium enterprises. This paper aims to know the credit flow for MSMEs by scheduled commercial banks and the role of CGTMSE inthe MSMEs sector.The study concluded that scheduled commercial banks provide credit loans to MSMEs but the majority of the MSMEs depend on another source of funds. CGTMSE is a successful tool in financing access to the MSE sector. The credit guarantee scheme focused on the MSEs which is the backbone of the Indian economy.