The Emergency Credit Line Guarantee Scheme (ECLGS) was introduced by the Indian Government as a part of the Atma Nirbhar Bharat package to support Micro, Small, and Medium Enterprises (MSMEs) and MUDRA borrowers during the economic disruptions caused by the COVID-19 pandemic. This scheme plays a pivotal role in reviving the economy by providing additional credit to businesses and promoting self-reliance.
Key Highlights of the Emergency Credit Line Guarantee Scheme (ECLGS)
- Launch Date: Approved by the Union Cabinet in May 2020 under the leadership of Prime Minister Narendra Modi.
- Funding Limit: Additional funding of up to ₹3 lakh crore to various sectors, primarily MSMEs and MUDRA borrowers.
- Part of Atma Nirbhar Bharat Abhiyan: This initiative aligns with India’s goal of becoming self-reliant.
- Loan Applicability:
- Loans sanctioned from the scheme’s launch to October 31, 2020 (later extended to September 3, 2021).
- Disbursement allowed until December 31, 2021.
- Applicable until guarantees of ₹3 lakh crore are issued, whichever occurs first.
Objectives of the ECLGS
- Comprehensive Coverage: The scheme offers 100% guarantee coverage by the National Credit Guarantee Trustee Company Limited (NCGTC) to Member Lending Institutions (MLIs), Banks, Financial Institutions, and Non-Banking Financial Companies (NBFCs).
- Access to Additional Funding: Enhances the availability of funding for MSME and MUDRA borrowers.
- Economic Relief: Mitigates the financial distress faced by MSMEs during the pandemic through guaranteed emergency credit lines.
- Low-Cost Credit: Ensures access to credit at a lower cost, helping small businesses meet operational liabilities and restart activities.
- Economic and Social Revival: Supports MSME recovery, contributing to the economic and social well-being of the nation.
Eligibility Criteria for ECLGS
To qualify for loans under the ECLGS, businesses must meet the following criteria:
- Turnover Limit: Enterprises with a turnover of up to ₹250 crores for FY 2019-20.
- Outstanding Loans: Borrowers with outstanding loans up to ₹50 crores as of February 29, 2020.
- Loan Amount:
- Up to 20% of the borrower’s total outstanding credit as of February 29, 2020.
- Maximum loan limit of ₹5 crores.
Tenure and Interest Rates under ECLGS
- Loan Tenure:
- Initially set at 4 years with a 1-year moratorium on principal repayment.
- Now extended to 5 years.
- Interest Rate Caps:
- Banks and Financial Institutions: Maximum of 9.25%.
- Non-Banking Financial Companies (NBFCs): Maximum of 14%.
- No Guarantee Fee: NCGTC does not charge any guarantee fees to Member Lending Institutions.
ECLGS 4.0: Scheme Expansion
On May 31, 2021, the Government of India announced the expansion of the ECLGS under ECLGS 4.0:
- Healthcare Support:
- 100% guarantee cover for loans of up to ₹2 crores at an interest rate of 7.5% for hospitals, clinics, and medical colleges to set up on-site oxygen generation plants.
- Extended Loan Tenure:
- Eligible borrowers under ECLGS 1.0 can now avail of a 5-year loan tenure.
- Additional Assistance:
- Up to 10% additional credit for borrowers covered under ECLGS 1.0.
- Revised Loan Ceiling:
- The ₹500 crore loan ceiling under ECLGS 3.0 has been discontinued.
- Maximum additional assistance is capped at 40% of the borrower’s outstanding loan or ₹200 crore, whichever is lower.
- Civil Aviation Sector: Included under ECLGS 3.0.
ECLGS 2.0: Expanded Scope
Announced in November 2020 as part of the Atma Nirbhar Bharat 3.0 package, ECLGS 2.0 introduced significant changes:
- Sectoral Inclusion: Expanded to 27 new sectors, including health, power, construction, textiles, real estate, and tourism, identified by the Kamath Committee for one-time debt restructuring.
- Beneficiary Expansion: Includes individual beneficiaries, professionals, and self-employed individuals.
- Revised Credit Limit:
- Turnover limit increased to ₹250 crores with outstanding loans of ₹50 crores as of February 29, 2020.
- Maximum loan amount increased to ₹10 crores.
- Extended Loan Tenure:
- Tenure upgraded to 5 years with a 1-year moratorium on principal repayment.
Role of National Credit Guarantee Trustee Company Limited (NCGTC)
The NCGTC, established in 2014, is a wholly-owned entity of the Government of India under the Ministry of Finance. Its primary functions include:
- Designing credit guarantee programs.
- Sharing lending risks with financial institutions.
- Facilitating access to credit for prospective borrowers.
Benefits of ECLGS
- MSME Revival: Provides essential liquidity to MSMEs to manage their operations and restart manufacturing.
- Low Borrowing Costs: Enables businesses to access funds at competitive interest rates.
- Economic Boost: Facilitates the revival of sectors significantly impacted by the pandemic.
- Increased Credit Availability: Enhances access to credit for self-employed individuals and small enterprises.
Conclusion
The Emergency Credit Line Guarantee Scheme (ECLGS) has been instrumental in supporting businesses during the COVID-19 crisis. By offering guaranteed credit, the scheme ensures financial stability for MSMEs and promotes economic recovery. With its evolving scope and expanded benefits, ECLGS stands as a testament to the Indian Government’s commitment to building a self-reliant and resilient economy.