Economics • Banking & FinanceHard
What is the primary function of the 'Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)' in the Indian financial architecture?
A. To provide direct equity capital to startup enterprises engaged in artificial intelligence and biotechnology
B. To guarantee collateral-free credit facilities extended by eligible financial institutions to micro and small manufacturing and service units✓ Correct Answer
C. To purchase non-performing assets from commercial banks and restructure corporate debt obligations
D. To regulate microfinance interest rates and prevent predatory lending practices in rural districts
💡 Solution & Explanation
CGTMSE was jointly established by the Ministry of Micro, Small and Medium Enterprises and SIDBI to provide credit guarantees to lenders, encouraging them to extend collateral-free loans to eligible micro and small enterprises. This mechanism mitigates the risk of default faced by commercial banks when lending to asset-deficient small businesses. The trust charges guarantee fees based on the credit facility size and risk profile.
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