Context

The government launched Rs 20,000-crore ‘Credit Guarantee Scheme for Subordinate Debt (CGSSD)’ to support distressed small businesses. 

About

• Under the Credit Guarantee Scheme for Subordinate Debt (CGSSD), the government will provide a subordinate debt facility to the promoters of micro, small and medium enterprises that are either distressed or classified under non-performing assets.
• In case of default, creditors giving subordinate debt are paid after primary debt is settled in full.
• The scheme will provide a guarantee cover worth Rs 20,000 crore to more than two lakh MSMEs, the Ministry of Micro, Small & Medium Enterprises said in an official release.
• The scheme will be operationalised through the Credit Guarantee Fund Trust for MSEs (CGTMSE).
• Under the CGSSD programme, the government will provide the guarantee cover to promoters who can take debt from banks to further invest in stressed MSMEs as equity. 

How will it be done?

• Promoter(s) of MSMEs meeting the eligibility criteria may approach any scheduled commercial banks to avail benefit under the scheme.
• They will be given credit equal to 15% of their stake (equity plus debt) or Rs. 75 lakh whichever is lower.
• Promoters in turn will infuse this amount in the MSME unit as equity and thereby enhance the liquidity and maintain debt-equity ratio.
• 90 percent guarantee coverage for this sub-debt will be given under the Scheme and 10 percent would come from the concerned promoters.
• There will be a moratorium of 7 years on payment of principal whereas maximum tenor for repayment will be 10 years.

Significance of the Scheme

• The scheme will help in reviving the economic activity in the country, and in protecting the livelihoods of millions of people.
• The scheme would provide much required support to around 2 lakh MSMEs and will help in reviving the economic activity in and through this sector.
• It will also help in protecting the livelihoods and jobs of millions of people who depend on them.