The Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry, has notified the establishment of a credit guarantee scheme for startups (CGSS) to provide credit guarantees to loans extended by Scheduled Commercial Banks, NBFCs and Securities and Exchange Board of India (SEBI) registered alternative investment funds (AIFs).
The purpose of CGSS is to provide credit guarantees up to a specified limit against loans extended by Member Institutions (MIs) to finance eligible borrowers, namely Startups as defined by DPIIT. The credit guarantee coverage will be transactional and umbrella-based. Individual case risk will be limited to Rs 100 million or the actual outstanding credit amount, whichever is smaller.
The extent of transaction-based cover will be 80% of the amount in default if the original loan sanction amount is up to Rs30 mn, 75% of the amount in default if the original loan sanction amount is above Rs 30 million, and up to Rs50 mn, and 65% of the amount in default if the original loan sanction amount is above Rs 50 million (up to Rs 100 million per borrower).
The umbrella-based guarantee cover will provide guarantee to Venture Debt Funds (VDF) registered under AIF regulations of SEBI (a growing segment of funding in Indian startup ecosystem), in view of the nature of funds raised by them and debt funding provided by them.The extent of umbrella-based cover will be the actual losses or up to a maximum of 5% of pooled investment, on which cover is being taken from the fund in eligible startups, whichever is lower, subject to a maximum of Rs 10 crore per borrower.
DPIIT will constitute a anagement Committee (MC) and a Risk Evaluation Committee (REC) for reviewing, supervising and operational oversight of the scheme. The National Credit Guarantee Trustee Company (NCGTC) will be operating the scheme.
A dedicated credit guarantee for DPIIT recognised startups will address the issue of unavailability of collateral free loan and enable flow of financial assistance to innovative startups through their journey to becoming full-fledged business entities.
CGSS will complement the existing Schemes under Startup India initiative namely, Fund of Funds for Startups and Startup India Seed Fund Scheme.
