The cabinet is likely to approve the Credit Guarantee Fund proposed by the Department of Industrial Policy and Promotion (DIPP) by september.

The government is in the process of formulating a Rs 2,000 crore credit guarantee scheme to enable start-ups to raise loans without any collateral.

“Government is formulating a Credit Guarantee Scheme for start-ups (CGSS) with a corpus contribution of Rs 2,000 crore that will enable start-ups to raise loans without any collateral for their business purposes,” Commerce Minister, Nirmala Sitharaman had recently told the Rajya Sabha in a written reply.

The main objective of the Credit Guarantee Fund is that the lender should give importance to project viability and secure the credit facility purely on the primary security of the assets financed. The other objective is that the lender availing guarantee facility should endeavor to give composite credit to the borrowers so that the borrowers obtain both term loan and working capital facilities from a single agency. The Credit Guarantee scheme (CGS) seeks to reassure the lender that, in the event of a MSE unit, which availed collateral free credit facilities, fails to discharge its liabilities to the lender, the Guarantee Trust would make good the loss incurred by the lender up to 50/75/80/85 per cent of the credit facility.

The Department of Industrial Policy and Promotion (DIPP) had proposed to set up a Credit Guarantee Fund in October 2016. The fund aims to support the ventures’ and entrepreneurs’ risk-taking abilities. With this fund in place, the start-ups would receive financial support from banks and financial institutions with a collateral-free guarantee.

The DIPP has been playing a key role in executing the Modi Government’s ‘Startup India, Stand Up India’ mission.