Centre plans Rs 2,000 crore credit guarantee fund for startups
The central government is formulating a Credit Guarantee Scheme for Startups (CGSS) with a corpus fund of Rs 2,000 crore that will enable startups raise loans without any collateral for their business purposes.
The proposed scheme will provide credit guarantee up to Rs 5 crore per case inclusive of term loan, working capital or any other instrument of assistance extended by Member Lending Institutions (MLIs) to finance an eligible borrower i.e. a startup recognised by the Department of Industrial Policy and Promotion (DIPP).
The scheme will provide benefit to a startup recognised by DIPP as per Gazette Notifications issued from time to time. For all resident Directors/Partners, Aadhaar shall be mandatory and for non-resident directors/partners, the passport number shall be a mandatory part of KYC norms, Commerce and Industry Minister Nirmala Sitharaman said in a written reply in Rajya Sabha on Wednesday.
Member Lending Institutions under the scheme can be Scheduled Commercial Banks and Financial Institutions, RBI registered Non-Banking Financial Companies (NBFCs) and SEBI registered AIFs among others. The scheme will function under the trusteeship management of the National Credit Guarantee Trustee Company (NCGTC).
The scheme shall provide portfolio-based credit guarantee. Each portfolio shall comprise at least 10 eligible start up loans, during a particular Financial Year. Coverage would be extended to the portfolio and the portfolio loss would be reckoned against the "net cash losses" during the portfolio life.
Instruments of assistance could be in the form of venture debt, working capital, debentures and Optionally Convertible debt among others.
MLIs may provide loans up to any amount required by an eligible borrower. However, under the scheme the exposure for availing credit guarantee shall be limited to Rs 5 crore per eligible borrower. Such loan will be extended by MLIs without any collateral security and/or third party guarantee.
The Management Committee shall be responsible for the overall supervision and monitoring of the Credit Guarantee Scheme for startups. A Risk Evaluation Committee (REC) shall also be formed to address conflict of interest issues.