The Government of India recently had extended the Emergency Credit Line Guarantee Scheme (ECLGS) by a month till 30th November 2020, as the scheme had thus far failed towards meeting the target of Rs 3 lakh crore. The scheme has been launched as part of the Atma Nirbhar Bharat Abhiyan package, which was announced by the Finance Minister of India, Nirmala Sitharaman in the month of May to lessen the concerns caused by Covid 19-induced lockdown, through providing credit towards different sectors, particularly micro, small and medium enterprises (MSMEs) which was badly hit during the countrywide lockdown.

This scheme was valid till October 2020. Though, the government was able to disburse less than half of the amount at Rs 1.48 lakh crore in spite of an aggressive push by the finance ministry, and even after expanding the ambit of the said scheme.

The Finance Ministry stated in a statement that the scheme was extended till 30th November or till such time that a sum of Rs 3 lakh crore is allowed under the scheme, whichever is earlier. It also held that the extension was given considering the anticipated increase in demand during the continuing festive season. This extension would make available a further opportunity to such borrowers who have not availed of the scheme up to now, towards obtaining credit under the scheme.

What is Collateral free MSME loans?

The 100% collateral-free MSME loan is called the ‘Emergency Credit Line Guarantee Scheme (ECLGS)‘, which was provided by the National Credit Guarantee Trustee Company (NCGTC) towards banks, NBFCs, and Financial Institutions (FIs).

As per the scheme, fully guaranteed and collateral-free additional credit towards MSMEs, business firms, individual loans for business purposes, as well as MUDRA borrowers is provided to the extent of 20% of their credit outstanding as of 29th February 2020.

This is a special type of scheme which is provided to help small businesses battling the economic effect of Covid-19 and consists of Pradhan Mantri MUDRA Yojana (PMMY) borrowers.

Who is eligible to avail of Emergency Credit Line Guarantee Scheme (ECLGS)?

All business firms or MSMEs who have a combined outstanding loan across different banks, NBFCs, and FIs up to Rs. 25 crores as of 29th February 2020, and when the annual turnover of the enterprise is up to Rs. 100 crores for Financial Year 2019-20 is entitled to the Scheme. Also, the Proprietorship, partnership, registered firm, trusts, and Limited Liability Partnerships are eligible under the Scheme, but then only the loans obtained for the business were covered. Any loan obtained by a promoter or director in his personal capacity shall not come under the scheme.

This Scheme was valid only for the existing users of a bank, NBFC, or FI. This implies that the scheme is not for any new borrowers. Moreover, the loan account must be below or equal to 60 days past due as of 29th February 2020, and the borrower was not classified as SMA 2 or NPA by any lender as of 29th February 2020. A borrower is required to be registered under GST, except the business is not required or relieved from having a GST registration.

What is the interest rate on loans under Emergency Credit Line Guarantee Scheme (ECLGS)?

The Interest rates under the scheme are subjected to a maximum of 9.25% per annum for banks and financial institutions (FIs), and 14% are capped for non-banking financial companies (NBFCs). The tenure of loans provided under this scheme is 4 years, which includes a moratorium of 1 year on principal repayment.

This facility was available for a borrower from 23rd May 2020 to 31st October 2020, or till a sum of Rs. 3 lakh crores have been allowed, whichever is earlier.

How does a person apply for loan under Emergency Credit Line Guarantee Scheme (ECLGS)?

The scheme has an automatic pre-approved procedure, which means a person is not required to approach the lender for the loan. If a borrower is eligible, a lender would automatically offer it. The scheme offers an option of ‘opt-out’ where the borrower might not avail of the scheme, whereas somebody who wants to take the benefits of this scheme would have to experience the documentation procedure.

Conclusion:

Under this scheme, the loan is extended for a period of 4 years from the date of disbursement and there would be no pre-payment charge if a borrower wants to pay early. There would also be no processing fee for such loans.

Also, it is important to specify that there would be a moratorium of 1 year on the principal repayment, but interest payment would stay during this period. The principal repayment then will be converted into equated installments spread across the remaining period, which is thirty-six (36) months.

Another loan account would be opened, which is going to be different from your current loan accounts. This makes that the scheme is not a refill on your existing loan. It is significant to note that Udyog Aadhaar or recognition as an MSME is not essential under this Scheme providing that you fulfill the eligibility criteria specified to avail of the scheme.

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