Department of industrial development, Government department

The Department for Promotion of Industry and Internal Trade (DPIIT) has notified the establishment of the Credit Guarantee Scheme for Startups that will act as a key enabler and risk mitigation measure for lending institutions and ensure collateral-free funding to startups, the Ministry of Commerce and Industry said on Friday.Under the new scheme, the government will provide credit guarantees to loans extended by Scheduled Commercial Banks, Non-Banking Financial Companies and Securities and Exchange Board of India (SEBI) registered Alternative Investment Funds (AIFs).The Credit Guarantee Scheme for Startups (CGSS) is aimed at providing credit guarantee up to a specified limit against loans extended by Member Institutions (MIs) to finance eligible borrowers viz. Startups as defined in the Gazette Notification issued by DPIIT and amended from time to time.The credit guarantee cover under the Scheme would be transaction-based and umbrella based. The exposure to individual cases would be capped at Rs 10 crore per case or the actual outstanding credit amount, whichever is less.In respect of transaction-based guarantee cover, the guarantee cover is obtained by the MIs on a single eligible borrower basis. Transaction-based guarantees will promote lending by Banks/ NBFCs to eligible startups.The extent of transaction-based cover will be 80 per cent of the amount in default if the original loan sanction amount is up to Rs 3 crore, 75 per cent of the amount in default if the original loan sanction amount is above Rs 3 crore, and up to Rs 5 crore, and 65 per cent of the amount in default if the original loan sanction amount is above Rs 5 crore (up to Rs 10 crore per borrower), according to an official statement released by the Ministry of Commerce and Industry.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 per cent 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.Along with institutional mechanisms for operationalising the scheme, DPIIT will be constituting a Management Committee (MC) and a Risk Evaluation Committee (REC) for reviewing, supervising and operational oversight of the Scheme. The National Credit Guarantee Trustee Company Limited (NCGTC) will be operating the scheme, the ministry said.Prime Minister Narendra Modi launched Startup India Action Plan on 16th January 2016 to lay the foundation of Government support, schemes and incentives envisaged to create a vibrant startup ecosystem in the country. The Action Plan envisaged a Credit Guarantee Scheme to catalyze entrepreneurship through credit to innovators and encourage banks and other member institutions in the ecosystem for providing venture debt to startups.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. The scheme further reiterates Government's focus towards promoting innovation and fostering entrepreneurship for making Indian startup ecosystem the best in the world.With the objective of mobilising domestic capital for Indian startups, CGSS will complement the existing Schemes under Startup India initiative viz. Fund of Funds for Startups and Startup India Seed Fund Scheme.The framework of CGSS has been prepared in extensive consultations with the stakeholders over the years with line ministries, banks, NBFCs, venture debt funds, academia and experts from startup ecosystem. The Scheme will act as a key enabler and risk mitigation measure for the lending institutions enabling collateral-free funding to startups.( With inputs from ANI )Disclaimer: This post has been auto-published from an agency feed without any modifications to the text and has not been reviewed by an editor

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