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Credit Guarantee Fund for Micro Units (CGFMU)

Allied Laws - S.O. 1443(E) - Dated:- 18-4-2016 - MINISTRY OF FINANCE (Department of Financial Services) NOTIFICATION New Delhi, the 18th April 2016 S.O. 1443(E).-In pursuance of the approval of the Cabinet vide its minutes of the meeting dated 6th January 2016, the Central Government hereby makes the following scheme for the purpose of providing guarantees to loans extended under Pradhan Mantri Mudra Yojana (PMMY). CHAPTER I INTRODUCTION 1. Title and date of commencement i. The Scheme shall be k .....

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ment of India with the purpose of guaranteeing payment against default in micro loans extended to eligible borrowers by Banks/NBFCs /MFIs / Other financial intermediaries, managed by the Board of NCGTC as the trustee of the Fund. ii. NCGTC means National Credit Guarantee Trustee Company set up on March 28, 2014 by Government of India under the Companies Act 1956 to act as the Trustee to operate various Credit Guarantee Funds, set up/to be set up by Government of India from time to time. iii. Por .....

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uent financial year. iv. Base year of the portfolio means the year of inception and crystallization of the portfolio. In other words, the financial year in which the portfolio is built up. v. Date of crystallization of the portfolio is the end of the financial year (March 31) in which the portfolio is built up (base year). vi. Currency of the portfolio is 3 complete financial years from the end of the date of crystallization of the portfolio. Therefore, total period of currency of portfolio will .....

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which interest rate applicable for the loan will be determined. ix. Borrower means micro unit who has executed loan documents with the lending institution to avail micro loan. x. "Collateral security" means the security provided in addition to primary security / personal obligation of borrower/co-borrower. Primary security would mean all the assets (movable/immovable) owned by the borrower, including the personal obligation [personal guarantee] of the borrower. xi. "Micro Loan&quo .....

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e stage of growth / development and funding needs of the beneficiary micro unit / entrepreneur and also provide a reference point for the next phase of graduation / growth. They are presently defined as under: Shishu: covering loans upto 50,000/- (Interest rate as stipulated by Mudra; presently not to exceed 12% p.a.) Kishor : covering loans above 50,000/- and upto 5 lakh Tarun : covering loans above 5 lakh and upto 10 lakh Further, Overdraft facility of ₹ 5,000/- sanctioned under PMJDY ac .....

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MJDY accounts shall also be eligible to be covered under Credit guarantee Fund. xiii. Guarantee Cover means maximum cover available per portfolio, based on the amount in default, in respect of the credit facility extended by the lending institution. The first 5% of the amount in default will be borne by the eligible lending institution. The amount in default over and above 5% (if applicable) will be settled by the fund to the extent of 50% on pro-rata basis, subject to the receipt of an Auditors .....

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from time to time, engaged in the business of extending credit to micro units and who have entered into an agreement with the Fund for availing the guarantee. The Fund may, on review of performance, remove any of the lending institution from the list. xvi. "Material Date" means the date on which the guarantee fee on the amount covered in respect of eligible borrower becomes payable by the lending institution to the Fund. xvii. "Non Performing Assets" means an asset classifie .....

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eligible micro unit by a lending institution which has entered into the necessary agreement for this purpose with the Fund, to provide guarantee against default in repayment of micro loans extended by the lending institutions. ii. The Fund reserves the discretion to accept or reject any proposal referred by a lending institution which otherwise satisfies the norms of the Scheme. 4. Micro loans eligible under the Scheme : The Fund shall cover micro loans up to the specified limit (currently ͅ .....

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nctioned since 8th April 2015 would qualify for guarantee cover under the scheme. The Fund may, at its discretion, approve/frame a list of Member Lending Institutions and /or their schemes, for which the guarantee cover will be available, or a negative list for which the guarantee cover shall not be available. 5. Micro Loans not eligible under the Scheme The following micro Loans shall not be eligible for being guaranteed under the Scheme: - i. Any micro Loan in respect of which risks are additi .....

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es or instructions issued by the Central Government or the Reserve Bank of India, which may, for the time being, be in force. iv. Any loan which has been sanctioned by the lending institution not conforming to interest rates as may be prescribed for such loans by the competent regulatory authority or such other rate as may be specified by the Fund from time to time will not qualify for guarantee cover. However, the Fund may revise such ceiling from time to time keeping in view the prevailing int .....

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been made in the Scheme. 7. Responsibilities of lending institution under the Scheme: i. The lending institution shall evaluate Micro Loans in accordance with the guidelines issued by Reserve Bank of India / the Fund and conduct the account(s) of the borrowers with normal lending prudence. ii. The lending institution shall pool all its outstanding micro loans extended against sanctions effected on or after April 08, 2015 as at the end of a quarter (quarter ended March, June, September andDecemb .....

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ts covered in the initial portfolio as well as new accounts added in the portfolio subsequently, are standard accounts. (c) All accounts which have turned NPA within the portfolio and for which claim has not been lodged have to be included in the portfolio on which the guarantee fee is payable. iv. The statutory auditor/management shall certify the amount of non-performing asset of the crystallized portfolio as on the date of March 31 every year, by the second quarter of every financial year fro .....

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ns and maintain its recourse to the borrower for entire amount of micro loan owed to it and initiate such necessary actions for recovery of the outstanding amount, including such action as may be advised by the Fund. vii. The lending institution shall comply with such directions as may be issued by the Fund, from time to time, for facilitating recoveries in the guaranteed account, or safeguarding its interest as a credit guarantor, as the Fund may deem fit and the lending institution shall be bo .....

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fect the interest of the Fund as the guarantor. In particular, the lending institution should intimate the Fund while entering into any compromise or arrangement, which may have effect of discharge or waiver of personal guarantee(s) or primary security. Further, the lending institution shall secure for the Fund or its appointed agency, through a stipulation in an agreement with the borrower or otherwise, the right to publish the defaulted borrowers' names and particulars by the Fund. ix. The .....

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the quarterly built up balance of the portfolio of micro loans for the full year or the broken period i.e. till March 31 of the subsequent year, as the case may be, and the Guarantee will be valid upto the end of that financial year. It may be noted that for such sanctioned cases which have been cancelled/repaid/pre-paid/taken over during the currency of the portfolio, no guarantee fee shall be charged for such sanctioned cases in the portfolio and no guarantee cover would be applicable. b) Duri .....

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ricing / such other amount on such reference dates or specified rate set by the Fund from time to time (risk based guarantee fee components given at Attachments in respect of 5 Models). The portfolio as at the end of third year from the date of crystallization will be finally settled and terminated. The outstanding balance of the terminated portfolio at the end of the third year will be deemed to be a new portfolio and could be merged with the current portfolio of that year at the discretion of .....

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aid by MLI, would be covered under the credit guarantee scheme subject to the loan accounts within the portfolio being eligible micro loans. iv. The Fund may at its discretion, charge risk based pricing i.e., different guarantee fees for different Member Lending Institutions depending on their credit rating, NPA levels, claim payout ratio, geographical spread, etc.; or such other parameters as per the experience of the Fund based on the performance of the portfolios of the respective MLIs. v. Pr .....

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aid by the lending institution to the Fund shall be non-refundable, except under certain circumstances like. Excess remittance, Remittance made more than once against the same portfolio, Fee paid in advance but application not approved for guarantee cover under the scheme, etc. CHAPTER IV GUARANTEES 9. Extent of the guarantee i. In the nature of First Loss Portfolio Guarantee , wherein first loss to the extent of 5% of the crystallized portfolio of the MLI, will be borne by the MLI and therefore .....

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he guaranteed portfolio. iii. The overall guarantee payout for an MLI would be linked to exposure norms/payout caps as may be specified by the Fund from time to time. CHAPTER V CLAIMS 10. Invocation of guarantee i. The lending institution may invoke the guarantee in respect of the amount in default out of the crystallized portfolio of micro loans, subject to the condition of first loss guarantee, after 1 year from the date of crystallization of the portfolio and thereafter, at the end of every f .....

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/ decisions taken contrary to or in contravention of the guidelines issued by the Fund. The certificate shall also mention the percentage of the amount in default borne by the MLI towards first loss. iii. The claim should be preferred by the lending institution in such manner and within such time as may be specified by the Fund in this behalf. iv. The Fund shall pay eligible claim amount on preferring of claims by the lending institution, within 60 days, subject to the claim being otherwise foun .....

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by the Fund, if such a recall is made by the Fund in the event of deficiencies having existed in the matter of appraisal / renewal / follow-up / conduct of the micro loan or where lodgment of the claim was more than once or where there existed suppression of any material information on part of the lending institutions for the settlement of claims. The lending institution shall pay such penal interest, when demanded by the Fund, from the date of the initial release of the claim by the Fund to th .....

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t shall be payable to the Fund by the lending institution at the rate stipulated by the Management Committee for the period for which payment remains outstanding after the expiry of the said period of 30 days. CHAPTER VI MANAGEMENT Constitution The Fund shall have a Management Committee to be appointed by the Settlor of the Fund consisting of Secretary, MSME as the ex-officio Chairperson; Chairman, MUDRA (SIDBI) Bank; Joint Secretary, DFS; Chief Executive Officer, MUDRA (SIDBI) Bank; Chief Execu .....

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ll such time the existing members of the Management Committee will continue. The member of the Fund shall be resident of India. The office of the member shall be vacated if he shall permanently leave India or if for reasons of illness of infirmity or mental incapacity he, in the opinion of the Government, becomes incompetent or incapable to act, as Member. A member may retire at any time after giving seven days notice in writing to the Government and unless he is the Chairperson of the Managemen .....

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guarantee has been invoked. Where subsequent to the Fund having released a sum to the lending institution towards the amount in default in accordance with the provisions contained in this scheme, the lending institution recovers money subsequent to the recovery proceedings initiated by it, the same shall be deposited by the lending institution with the Fund, after adjusting towards the legal costs incurred by it for recovery of the amount. 2. Fund's liability to be terminated in certain cas .....

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of the said transfer or assignment. (ii) If a borrower becomes ineligible for being granted Loan under the Scheme, the liability of the Fund in respect of Loan granted to him by a lending institution under the Scheme shall be limited to the liability of the borrower to the lending institution as on the date on which the borrower becomes so ineligible, subject, however, to the limits on the liability of the Fund fixed under this Scheme. 3. Returns and Inspections (i) The lending institution shal .....

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any officer thereof for anything done in good faith. (iii) The Fund shall, insofar as it may be necessary for the purposes of the Scheme, have the right to inspect or call for copies of the books of account and other records (including any book of instructions or manual or circulars covering general instructions regarding conduct of advances) of the lending institution, and of any borrower from the lending institution. Such inspection may be carried out through the officers of the Fund or any o .....

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by the provisions of the Scheme as if the same had been written in the documents evidencing such guarantee. ii. The lending institution shall as far as possible ensure that the conditions of any contract relating to an account guaranteed under the Scheme are not in conflict with the provisions of the Scheme but notwithstanding any provision in any other document or contract, the lending institution shall in relation to the Fund be bound by the conditions imposed under the Scheme. 5. Modificatio .....

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ee has not been issued / invoked as on the date of such alteration. iii. In the event of the Scheme being cancelled, no claim shall lie against the Fund in respect of facilities covered by the Scheme, unless the provisions contained in the Scheme are complied with by the lending institution prior to the date on which the cancellation comes into force. 6. Interpretation If any question arises in regard to the interpretation of any of the provisions of the Scheme or of any directions or instructio .....

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s (SCBs) Standard Basic Rate (SBR) of 1.00% of sanctioned amount ; and Risk premium on NPAs in guaranteed portfolio Risk premium on Claim Payout Ratio NPA Percentage Risk Premium Claim Payout Ratio Risk Premium 0-2% Nil 0-2% Nil >2-3% 5% of SBR >2-3% 5% of SBR > 3-6% 10% of SBR > 3-6% 10% of SBR >6-9% 15% of SBR >6-9% 15% of SBR >9-12% 20% of SBR >9-12% 20% of SBR >12-15% 25% of SBR >12-15% 25% of SBR 2. Micro Finance Institutions (MFIs) Standard Basic Rate (SBR) of .....

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. 50% over SBR >9-12% 20% of SBR >9-12% 20% of SBR - >12-15% 25% of SBR >12-15% 25% of SBR 3. Non Banking Financial Companies (NBFCs) {Asset Finance Company (AFC) and Loan Company (LC)} Standard Basic Rate (SBR) of 1.00% of sanctioned amount ; and Risk premium on Credit Rating / Grading Risk premium on NPAs in guaranteed portfolio Risk premium on Claim Payout Ratio Credit Rating / Grading Risk Premium NPA Percentage Risk Premium Claim Payout Ratio Risk Premium AAA / equiv. Nil 0-2% N .....

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