New Scheme Introduced For Helping Distressed MSMEs

June 29, 2020 / Garima Khetan

Ministry of Micro, Small and Medium Enterprises (“MoSME”) on 24th June 2020 has launched another funding scheme to help the distressed MSME sector. The Scheme is named as ‘Distressed Assets Fund – Subordinate Debt for Stressed MSMEs’. The Scheme will be operationalized through a Trust called Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

Purpose: The purpose of the Scheme is to provide guarantee coverage to provide sub-debt support in respect of the restructuring of MSMEs. It shall provide personal loans through banks to the promoters of stressed MSMEs for infusion as equity/quasi-equity in the business eligible for restructuring.

Duration: The Scheme would be applicable for a maximum period of 10 years from the guarantee avail ment date or 31 March 2021, whichever is earlier; or till an amount of Rs. 20,000 crores of guarantee is approved.

Key Highlights of the Scheme:

  • The Scheme seeks to extend support to the promoter(s) of the operational MSMEs which are stressed and have become NPA as on 30th April 2020.
  • Promoter(s) of the MSMEs will be given credit equal to 15% of their stake (equity plus debt) or Rs. 75 lakh whichever is lower.
  • Any guarantee approved under this Scheme shall be over and above the existing loan or guarantee sanctioned.
  • Promoter(s) in turn will infuse this amount in the MSME unit as equity and thereby enhance the liquidity and maintain the debt-equity ratio.
  • Lending institutions to undertake due diligence to assess the viability, need, and requirement of the sub-debt facility and shall also ensure that the sub-debt/credit given to the promoters are infused into the MSME unit.
  • The sub-debt shall have a repayment schedule as defined by the lender, subject to a maximum of 10 years from the guarantee availment date or 31 March 2021, whichever is earlier.
  • There will be a moratorium of 7 years on payment of principal whereas maximum tenor for repayment will be 10 years; where the principal has to be repaid within a maximum of 3 years after completion of the moratorium and the interest shall be serviced monthly.
  • The sub-debt will have a second charge on the assets.
  • A non-refundable guarantee fee of 1.50% per annum on the outstanding guarantee amount shall be borne by the borrowers.
  • 90% guarantee coverage for this sub-debt will be given under the Scheme and 10% would come from the concerned promoters.

Points to Note:

  1. Exceptions – Fraud and Wilful Defaulter accounts will not be considered under this Scheme.
  2. MSME can be a Proprietorship, Partnership, Private or any other Registered company, etc.
  3. Responsibilities of the lending institutions, returns, and inspections have all been covered by the Ministry, refer link for details.

 Link to the Circular