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Emergency Credit Line Guarantee Scheme (ECLGS)

Topics Covered: Schemes for the vulnerable sections of the society.

Emergency Credit Line Guarantee Scheme (ECLGS)

What to study?

For Prelims and Mains: Key features and significance of the scheme.

Context: The Union Cabinet has given its approval for the Emergency Credit Line Guarantee Scheme (ECLGS) for MSMEs and MUDRA borrowers.

Key features:

  1. Under the Scheme, 100% guarantee coverage to be provided by National Credit Guarantee Trustee Company Limited (NCGTC) for additional funding of up to Rs. 3 lakh crore to eligible MSMEs and interested MUDRA borrowers.
  2. The credit will be provided in the form of a Guaranteed Emergency Credit Line (GECL) facility.
  3. The Scheme would be applicable to all loans sanctioned under GECL Facility during the period from the date of announcement of the Scheme to 31.10.2020.
  4. Tenor of the loan under Scheme shall be four years with a moratorium period of one year on the principal amount.
  5. No Guarantee Fee shall be charged by NCGTC from the Member Lending Institutions (MLIs) under the Scheme.
  6. Interest rates under the Scheme shall be capped at 9.25% for banks and FIs, and at 14% for NBFCs.

Benefits of the scheme:

  • The scheme aims to mitigate the distress caused by COVID-19 and the consequent lockdown, which has severely impacted manufacturing and other activities in the MSME sector.
  • The scheme is expected to provide credit to the sector at a low cost, thereby enabling MSMEs to meet their operational liabilities and restart their businesses.
  • By supporting MSMEs to continue functioning during the current unprecedented situation, the Scheme is also expected to have a positive impact on the economy and support its revival.

InstaThink:

Prelims Link:

  1. Classification of MSMEs- old vs new.
  2. Contributions of MSMEs to GDP.
  3. What are NBFCs?
  4. What is GECL facility?
  5. What is NCGTC?

Sources: pib.