According to an SBI Research analysis, at least 14.6 lakh micro, small and medium enterprises (MSMEs) accounts were saved due to the Emergency Credit Line Guarantee Scheme (ECLGS).


Highlights of the analysis

  • Impact of the scheme on MSME units and employment — At least 14.6 lakh MSMEs accounts were saved due to the ECLGS, thus saving around 6 crores of jobs till November, 2022.
  • Size of total MSME loan accounts which were saved from slipping into NPA —
      • In absolute terms, MSME loan accounts worth Rs 2.2 lakh crore have improved since the inception of ECLGS for the entire banking industry.
      • This means that around 12 per cent of the outstanding MSME credit has been saved from slipping into NPA because of this scheme.
  • MSME units becoming larger — The report noted that there is evidence of MSME units becoming larger with several units crossing the threshold of Rs 250-crore turnover. This reveals integration of MSME units with a larger value chain.
  • Urgent need to revamp the Credit Guarantee Scheme for the MSME sector —
      • To catalyse flow of institutional credit to MSMEs, government has set up Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).
      • In this regard, the report said that the U.S. Small Business Administration (US-SBA) could be a template.
  • Increase the maximum loan amount for coverage under CGTMSE —
      • The maximum loan amount for coverage under CGTMSE may be increased from Rs 2 crore to Rs 5 crore for all activities under manufacturing, services and trade sectors.
      • Guarantee coverage for the units having women promoters should be increased to 100% to give fillip to women entrepreneurship.
  • Other suggestions — It proposed increasing claims settlement to the extent of 10 times of the guarantee fee paid by the banks. It also emphasised on complete end-to-end digital platform to ensure real time sanction, disbursement and claim settlement for the guaranteed portfolio.


About the ECLGS

  • The ECLGS was unveiled as part of the comprehensive package announced by Finance Ministry.
    • ECLGS was launched in different phases – ECLGS 1.0, ECLGS 2.0, ECLGS 3.0, ECLGS 4.0.
  • This scheme was launched to aid Micro, Small and Medium Enterprises (MSMEs) sector in view of the economic distress caused by the COVID-19 pandemic.
  • In different phases, the scope of this scheme was increased to include multiple sectors.
  • The scheme is under the operational domain of Ministry of Finance, Department of Financial Services (DFS).
    • National Credit Guarantee Trustee Company Ltd (NCGTC) has been set up as a company by the Union Ministry of Finance to manage and provide guarantees to these loans.
  • Purpose –
      • The ECLGS aims to provide 100% guaranteed coverage to the banks, non-banking financial institutions (NBFCs) and other lending institutions.
      • The idea was to enable these lending institutions to extend emergency credit to business entities that have suffered due to the Covid-19 pandemic and are struggling to meet their working capital requirements.


Working of the scheme

  • The overall ceiling initially announced for ECLGS was Rs 3 lakh crore which was subsequently enhanced to Rs 4.5 lakh crore. Recently, in August 2022, the government increased the ceiling to 5 lakh crore to include the hospitality sector.
  • However, ECLGS is a demand driven scheme. Hence, sanctions/disbursements are made by lending institutions based on assessment of borrower’s requirement and their eligibility.
  • As of August 5, 2022, loans of ₹3.67 lakh crore have already been sanctioned under the scheme. More than 1.14 crore borrowers have been issued guarantee under the scheme.