The Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry has notified the expansion of the Credit Guarantee Scheme for Startups or CGSS which increases the ceiling on guarantee cover per borrower under the Scheme from Rs. 10 crore to Rs. 20 crore. The extent of guarantee cover provided has also been increased to 85% of the amount in default for loan amount up to Rs. 10 crore and 75% of the amount in default for loan amount exceeding Rs. 10 crore.
Further, the Annual Guarantee Fee (AGF) for startups in 27 Champion Sectors has been reduced to 1% p.a. from 2% p.a. The Champion Sectors have been identified by the Government under ‘Make in India’ to provide a thrust to India’s manufacturing and service capabilities. The reduction in AGF for Champion Sectors will make funding more attractive for the identified sectors and boost innovation in domestic manufacturing and self-reliance.
In line with the vision of the Prime Minister Narendra Modi of transforming India into an innovation-driven self-reliant economy, the notified expansions aim to address the financing needs of innovation-driven startups. As a result of the increased guarantee support and coverage, the number of financial institutions coming forward to provide credit support to startups shall increase, thereby increasing overall fund flow for startups.
The expanded Scheme will further reduce the perceived risks associated with lending to startups in established financial institutions, enabling greater financial flow and runway for startups to undertake research and development (R&D), experimentation, and create cutting-edge innovation and technologies.
Several operational reforms and other enabling measures identified through consultations with the startup ecosystem have also been included in the expanded CGSS to make the Scheme attractive for lenders and startups seeking funding support. The expansions and modifications are expected to give thrust to the Scheme and enable a wider range of startups to benefit to propel the country towards becoming a Viksit Bharat.