Economics • Banking & FinanceHard
Evaluate the role of the 'Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)' in the Indian financial architecture. What is its principal function?
A. To provide collateral-free credit guarantee coverage to member lending institutions extending loans to micro and small enterprises✓ Correct Answer
B. To purchase non-performing commercial assets directly from public sector banks at book value
C. To regulate interest rates charged by venture capital funds operating in manufacturing clusters
D. To disburse direct cash subsidies to exporting firms based on annual export volume targets
💡 Solution & Explanation
The Credit Guarantee Fund Trust for Micro and Small Enterprises was established jointly by the Government of India and Small Industries Development Bank of India to make collateral-free credit available to micro and small enterprises. By providing credit guarantees to lending institutions against default risks, it encourages banks to lend to first-generation entrepreneurs who lack tangible collateral. This mechanism significantly expands credit access for small-scale industrial units across the country.
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