Access to finance remains one of the biggest hurdles for micro and small enterprises (MSEs) in India. Although many entrepreneurs have viable ideas and operations, banks often hesitate to lend without collateral or third-party guarantees, making credit prohibitively expensive or inaccessible. To bridge this gap, the Delhi Government has launched a new scheme in collaboration with the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). Through this arrangement, eligible small enterprises in Delhi will be able to access loans without pledging collateral. This article examines how the scheme works, who benefits, and what its broader implications might be.

The New Delhi Scheme: Structure and Features

Partnership and Guarantee Coverage

The Delhi Government has entered into a partnership with CGTMSE to share credit risk and facilitate collateral-free loans for eligible enterprises. Under this arrangement, the total guarantee coverage on eligible loans may go up to 95 %, with a division of burden between CGTMSE and the Delhi Government depending on the borrower type and loan size.

For many small enterprises, CGTMSE will cover 75 % of the risk, while the Delhi Government will provide a 20 % guarantee (sum totaling 95 %). For micro-enterprises and special categories (women entrepreneurs, units led by Agniveers), the split is slightly more favorable, e.g. 85 % from CGTMSE and 10 % from Delhi, or 90 %/5 % in some cases.

Loans up to ₹10 crore are eligible under this scheme, and for micro enterprises (those needing smaller sums), the structure is more generous in terms of coverage from CGTMSE and state contribution. The idea is to reduce the risk for banks and promote easier access to credit.

In support of this, the Delhi Government has allocated an initial amount of ₹5 crore for the 2025–26 fiscal year, and plans a further phased contribution of around ₹50 crore in coordination with CGTMSE to scale up the scheme.

Chief Minister Rekha Gupta has characterized the initiative as a new chapter in Delhi’s economic growth, particularly for manufacturing, services, retail, and education sector enterprises.

Understanding CGTMSE: Background and Mechanism

Origins, Structure, and Purpose

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) was established in 2000 through a joint initiative of the Ministry of Micro, Small & Medium Enterprises (MSME) and SIDBI (Small Industries Development Bank of India). Its central objective is to enable MSEs to access finance from formal institutions without needing collateral or third-party guarantees. Over the years, it has evolved into a risk buffer for lenders, encouraging them to lend to small and micro enterprises.

Under the Credit Guarantee Scheme (CGS) managed by CGTMSE, eligible Member Lending Institutions (banks, NBFCs, etc.) can extend credit (term loans or working capital) to MSEs while obtaining guarantee cover from CGTMSE for the unsecured portion. This reduces the effective exposure for the lender and thus lowers the threshold for providing credit.

CGTMSE’s guarantee ceiling was earlier ₹2 crore, later revised to ₹5 crore (from April 2023) to widen support. More recently (as of April 2025), the scheme allows guarantee cover up to ₹10 crore. This enhancement helps absorb larger credit needs of growing small enterprises.

Eligibility, Coverage, and Fees

Eligible borrowers include both new and existing micro and small enterprises engaged in manufacturing or service sectors (excluding agriculture, SHGs, and JLGs). The scheme also supports co-financing by multiple lenders.

The guarantee coverage (i.e. the percentage of loan amount covered) varies based on loan size, enterprise category, and policy decisions. The borrower (or lender on behalf of the borrower) pays an Annual Guarantee Fee (AGF), which is a small percentage of the sanctioned amount. The fee varies across slabs — for example, for smaller loans the AGF is lower, while for amounts above ₹1 crore, the rate is higher (e.g. up to 1.20 % or 1.35 %, depending on the bracket). Special discounts (e.g. 10 %) exist for women, SC/ST, micro enterprises, units in aspirational districts, and more.

CGTMSE also offers a Hybrid Security product, allowing partial collateral to be accepted, while the remainder of the credit facility still gets guarantee cover. This flexibility is intended to help lenders optimize their risk assessment while still facilitating unsecured portions.

Over the years, CGTMSE has grown significantly. By the financial year 2025, it issued guarantees for about 27 lakh loan accounts amounting to roughly ₹3.05 lakh crore. It also counts 276 member lending institutions and maintains a guarantee portfolio exceeding ₹9.34 lakh crore.

The Delhi Guarantee Scheme: Detailed Benefit Matrix

Below is a table summarizing the guarantee coverage under this new Delhi–CGTMSE scheme for different categories of borrowers and loan amounts:

The following table presents how the guarantee responsibility is split between CGTMSE and the Delhi Government under different scenarios.

Borrower Category / Loan Size	CGTMSE Coverage	Delhi Government Coverage	Total Coverage	Notes / Conditions
Micro enterprise (up to ₹5 lakh)	85 %	10 %	95 %	For smaller-scale units needing modest credit
Small enterprise (loans up to ₹10 crore)	75 %	20 %	95 %	Standard coverage for typical small businesses
Women-led enterprises / MSMEs by Agniveers (up to ₹10 cr)	90 %	5 %	95 %	Favorable split to promote inclusion
Intermediate loans (₹5 lakh to ₹10 cr)	75 %	20 %	95 %	Similar treatment as small enterprises

After seeing the table, one can clearly grasp that regardless of the size of the eligible loan (micro to ₹10 crore), the total coverage under this scheme is aimed at 95 %. The Delhi Government steps in to supplement the risk coverage, especially at margins where CGTMSE alone would otherwise cover only 75 %. These splits reflect the Government’s commitment to shoulder part of the risk and widen access.

The structure helps align the interests of lenders, state government, and central guarantee agency. By reducing the lender’s exposure, it encourages them to sanction more loans to viable small businesses, particularly those that may struggle to provide collateral.

Potential Impact, Opportunities, and Challenges

Stimulating Enterprise Growth in Delhi

With this new scheme, small entrepreneurs in Delhi—especially in under-banked or resource-constrained areas—stand to benefit significantly. Key potential impacts include:

Reduced financing hurdle: Many micro and small firms will no longer need to pledge property or assets to secure credit.
Lower risk premium: Banks perceive lower risk because most of the loan is guaranteed, allowing more favorable pricing and terms.
Increased uptake from newer entrepreneurs: First-generation or marginal entrepreneurs may be more willing to enter the formal credit market.
Sectoral engagement: The scheme covers a broad range of sectors—manufacturing, services, retail, education—so its benefits are not limited to a narrow slice of industry.
Gender and inclusion push: The more favorable guarantee splits for women-led units and enterprises run by Agniveers may increase participation from traditionally underrepresented groups.

However, the scheme is not without obstacles. Some of the challenges and risks include:

Awareness and outreach: Many eligible entrepreneurs, especially in informal segments, may not know about the scheme. Effective communication and facilitation will be critical.
Credit evaluation and moral hazard: Even with guarantee coverage, lenders must still undertake proper due diligence. There is a risk that weaker projects may slip through if oversight is lax.
Claim settlement and default risk: In case of defaults, the high guarantee percentages might strain the capacity of guarantee funds and complicate claim settlement. Delays in reimbursements could disincentivize lenders.
Sustainability of state risk bearing: The Delhi Government must ensure it sets aside sufficient budgetary backing and monitoring mechanisms to sustain its share of guarantees across defaults.
Administrative and bureaucratic burden: Coordination between CGTMSE, state authorities, and multiple banks may involve procedural complexities and delays if systems are not fully integrated.

A robust implementation framework, streamlined digital processes, and strong governance will be essential to mitigate these risks.

Comparative Context & Lessons from Other States

Delhi is not the first to adopt a state-level co-guarantee or risk-sharing scheme alongside CGTMSE. Several states and union territories have experimented with similar models or supplementary guarantee funds to enhance credit reach. Key lessons and comparative insights include:

State-level guarantee funds: States like Karnataka, Tamil Nadu, and Madhya Pradesh maintain their own credit guarantee funds to complement national schemes. They often support sectors or geographies that are deemed higher risk.
Co-guarantee models: Some states adopt a co-guarantee structure, where the state participates in covering a portion of default risk, much like Delhi’s new model. This shared burden helps reduce the cost on the central guarantee scheme and tailor risk coverage locally.
Faster digital workflows: States with integrated digital systems for guarantee application, monitoring, and claim settlement tend to perform better in terms of turnaround time and transparency.
Performance-based incentives: In some cases, states tie the viability of enterprises (such as job creation or turnover growth) to continued guarantee support, thereby incentivizing enterprise performance and minimizing reckless lending.
Awareness campaigns: States that have launched workshops, MSME fairs, district-level facilitation centers, and telecom-based outreach have higher uptake among smaller, rural, or underserved units.

Delhi’s model, therefore, benefits from this cumulative experience. But to maximize impact, Delhi should emphasize seamless digital processing, capacity building for banks, and proactive promotion among entrepreneurs across all parts of the city and peri-urban areas.

Implementation Considerations & Best Practices

To ensure the new scheme succeeds, here are several practical considerations and best practices:

Single-window facilitation
Entrepreneurs should be able to apply via a single platform (state or CGTMSE portal) where all validations, approvals, and tracking happen seamlessly.
Rapid approval and disbursement
Guarantee processing should be time-bound (e.g. 48 hours), and disbursements executed promptly to instill confidence among lenders and borrowers.
Robust due diligence protocols
While guarantees reduce risk, lenders must continue strict credit appraisal, monitoring, and periodic audits to avoid lax lending.
Transparent claim settlement
In case of borrower default, the claim process from lender to CGTMSE and state contribution must be clear, timely, and streamlined to avoid disputes or bottlenecks.
Rigorous monitoring and reporting
The state should regularly publish disbursement figures, claim ratios, sectoral performance, and default trends for accountability and course correction.
Training and capacity building
Banks, credit officers, and MSME facilitation centers should be trained in the scheme’s rules, products, risk models, and monitoring requirements.
Awareness and outreach programs
Publicity drives, workshops in local languages, business chambers, and tie-ups with industry associations will help reach entrepreneurs who may not otherwise hear about the scheme.
Periodic evaluation and feedback loops
After a period (e.g. one or two years), the scheme should be evaluated for performance, impact, and adjustments made in guarantee rates, coverage slabs, or procedural bottlenecks.

Conclusion

With its new partnership with CGTMSE, the Delhi Government has taken a bold step to democratize access to credit for its micro and small enterprises. By offering up to 95 % guarantee coverage on loans up to ₹10 crore, and by sharing the guarantee burden itself, the state is signaling a strong commitment to fostering entrepreneurship, reducing financing bottlenecks, and stimulating local economic growth.

If well executed, with digital efficiency, robust risk management, strong oversight, and widespread awareness, this scheme could help many deserving enterprises cross the threshold from informal to formal, from struggle to sustainable growth. It can also serve as a template for other states to combine national guarantee schemes with state-level risk sharing.

However, the true success of this initiative will hinge not just on the guarantee percentages, but on execution: in reaching those who need it, in building institutional capacity, in managing defaults, and in keeping the process frictionless for genuine entrepreneurs. With careful implementation and continuous evaluation, Delhi’s approach could become a powerful lever for inclusive growth in its small enterprise ecosystem.

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