The Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) was launched in 2000 by the Government of India (GOI) and Small Industries Development Bank of India (SIDBI) as a trust to implement the credit guarantee scheme (CGS) for MSEs with an initial corpus of Rs. 2500 Cr. More contributions were made over the years, and the corpus amount stood at Rs. 7500 Cr as of March 2020. The purpose is to accelerate credit to the sector that would not be in a position to offer a third-party guarantee or collateral required by the lender. As per the International Finance Corporation, the total financing demand of the Indian MSME sector is around Rs.325lakh crore that comprised of entrepreneurs contribution of Rs.46lakh crore and estimated demand of Rs.279lakh crore. The enormity of the financial challenge is clear from the fact that the credit gap is close to twice the actual outstanding amount of formal credit extended to the sector. (Raju, 2019)
In my opinion, insurance of the distinct links in the supply chain of micro and small manufacturing enterprises can be a better option than a guarantee scheme. Insurance provides a more comprehensive coverage for potential risks and losses, whereas guarantee schemes may have limitations and exclusions. Additionally, insurance can help to mitigate the financial impact of unexpected events, such as natural disasters or market fluctuations. However, it ultimately depends on the specific needs and circumstances of each enterprise.
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