CGTMSE helps move away from collateral-based loans
The Indian Government established the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGFTMSE) in order to provide lenders with partial guarantees on loans they make to borrowers. In doing so they provide sufficient assurance for the lenders to make the loans without collateral and instead focus on the viability of the project instead.
According to Microcapital.org, “CGTMSE was established in 2000 and, over nine years, has approved 150,034 applications which demanded USD 968.1 million in guarantee payments to lenders. In actuality, guarantees worth USD 800.7 million were given to 48 lending organizations to provide 121,229 loans over the nine-year span. 43 percent of this sum was paid in 2008 alone. “
These sort of insitutions make you realize how truly complex the micro-lending space is and how many players must be involved in order to ensure that the entire chain functions. For example, one of the effects of the CGTMSE is that it actually encourages people to borrow multiple times from the same lender since the lender is willing to do so due to the partial guarantees. This helps with the administrative practicality of keeping track of all the debtors out there.
The full article can be read here.
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