What is CGTMSE? Collateral-free credit for micro and small enterprises, explained
How the CGTMSE credit guarantee works, who it is for, what it covers and what it costs, explained in plain language with official RBI and CGTMSE sources.
Rules checked against official sources on
Many small business owners have a viable business but no property to pledge. CGTMSE exists for exactly that situation. It does not lend money. It guarantees the lender, so that the lender can lend without asking for collateral or a third-party guarantee.
Who runs it
The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) was set up by the Ministry of MSME, Government of India, and SIDBI. In the RBI's words, its main objective is that "the lender should give importance to project viability and secure the credit facility purely on the primary security of the assets financed".
In plain terms: the bank looks at the business and the assets its loan creates (stock, receivables, machinery), not at the owner's house.
How the guarantee works
- A micro or small enterprise applies to an eligible lender for a loan without collateral.
- The lender appraises the proposal as it normally would. If it decides to lend, it covers the loan under CGTMSE.
- The lender pays a guarantee fee to CGTMSE for that cover (this cost is usually passed on to the borrower).
- If the loan later goes bad, CGTMSE makes good a part of the lender's loss: according to the RBI, 75 to 90 per cent of the amount in default, depending on the category of borrower and loan.
A guarantee is not an approval
CGTMSE reduces the lender's risk. It does not oblige any lender to sanction a loan. The credit decision is always the lender's, based on its own appraisal of the business.
How much can be covered
The RBI's MSME FAQ states that CGTMSE provides cover for credit facilities up to ₹10 crore extended without collateral security or third-party guarantees. Both term loans and working capital can be covered, subject to the trust's scheme rules.
How it fits with the RBI collateral rule
(Detailed explainer: collateral-free MSE loans up to ₹20 lakh.)
Separately from CGTMSE, the RBI requires banks not to take collateral on loans up to ₹20 lakh to micro and small enterprises. This limit applies to loans sanctioned or renewed on or after 1 April 2026 (it was ₹10 lakh before). Banks may go up to ₹25 lakh without collateral for units with a good track record, under their own policy, and "may avail the benefit of Credit Guarantee Scheme cover, where applicable".
So, broadly:
| Loan size (MSE) | Collateral position |
|---|---|
| Up to ₹20 lakh | Banks must not take collateral (RBI mandate). Guarantee cover may still be used by the bank. |
| Above ₹20 lakh, up to ₹10 crore | Collateral-free lending is possible if the lender covers the loan under CGTMSE. |
What it costs
CGTMSE charges an annual guarantee fee (AGF). For guarantees approved or renewed from 1 April 2025, CGTMSE's published fee table runs from 0.37 per cent to 1.20 per cent a year, rising with the size of the guaranteed amount. The fee is charged on the guaranteed amount in the first year and on the outstanding amount after that, so for a reducing term loan the rupee cost falls over time.
Worked example (illustrative numbers)
A term loan of ₹40 lakh is covered under CGTMSE. Suppose the applicable fee rate is 1.00 per cent a year (check the current table for the actual slab). The first-year fee is about ₹40,000. If the outstanding balance falls to ₹30 lakh by the second year, that year's fee is about ₹30,000.
Who is eligible
The guarantee is for micro and small enterprises (medium enterprises are outside it). Under the definition notified in March 2025, a micro enterprise has investment in plant and machinery or equipment up to ₹2.5 crore and turnover up to ₹10 crore, and a small enterprise up to ₹25 crore and ₹100 crore respectively. The detailed list of eligible activities and lenders is published by CGTMSE.
How to use this information
- Ask your lender whether your proposal can be considered under CGTMSE if you do not have collateral.
- Prepare as you would for any loan: clean financial statements, a realistic projection and clear repayment capacity. The guarantee does not replace appraisal.
- Factor the guarantee fee into the cost of the loan.
Rules, fee slabs and coverage percentages are revised from time to time. Check the current position on cgtmse.in before applying.
References
- Frequently Asked Questions: Micro, Small and Medium Enterprises (updated as on July 29, 2025), Q.11-Q.12, Reserve Bank of India (accessed 3 November 2026)
- Lending to Micro, Small & Medium Enterprises (MSME) Sector (Amendment) Directions, 2026 (RBI/2025-26/206, February 9, 2026), Reserve Bank of India (accessed 3 November 2026)
- Annual Guarantee Fee for guarantees approved or renewed on or after April 1, 2025, Credit Guarantee Fund Trust for Micro and Small Enterprises (accessed 18 October 2026)
Educational content only, not financial advice or an offer of credit. Rules and rates change: confirm with the official source and your lender before acting. Disclaimer · Editorial policy