What is the Emergency Credit Line Guarantee Scheme?

The Emergency Credit Line Guarantee Scheme (ECLGS) is a part of the Atma Nirbhar Bharat package to help Micro, Small, and Medium enterprises. While the scheme was launched by the Union Minister in May 2020, led by Prime Minister Narendra Modi, its scope was further expanded by the Finance Ministry over a period of time.

Here, we will discuss all about the ECLG scheme, its purpose, features, eligibility criteria, and more.

Versions of the ECLGS

The Emergency Credit Line Guarantee Scheme, or the ECLGS, has four versions that were rolled out one after the other. Let’s look at them one by one - 

• ECLGS 1.0

It was launched in May 2020, and loans up to ₹5 Crore were available. 20% of the amount of businesses having outstanding loans up to ₹50 Crore and days past due being up to 60 days as of 29 February 2020 were eligible. 

The tenure was 48 months, including a 12-month principal moratorium. After the moratorium period ends, the principal should be repaid in 36 equal installments.

• ECLGS 2.0

Launched in November 2020, this version extended services to 26 sectors identified by the Kamath Committee, including healthcare and education. 

Businesses having an outstanding credit between ₹50 Crore to ₹500 Crore and days past due being up to 60 days as of 29 February 2020 were eligible. Loans up to ₹10 Crore or 40% of the outstanding credit were available. 

The tenure was 60 months, including a 12-month principal moratorium. After the moratorium period ends, the principal should be repaid in 48 equal installments.

• ECLGS 3.0

It was launched in March 2021 and extended the benefits to hospitality, travel, leisure, sporting, and tourism sectors. The loan limit was up to ₹40 Crore or 40% of the outstanding credit, whichever is lower, having days past due up to 60 days as of 29 February 2020. 

The tenure was 72 months, including a 24-month principal moratorium. After the moratorium period ends, the principal should be repaid in 48 equal installments.

• ECLGS 4.0

Launched in June 2021, it focused on the healthcare sector. Loans were provided to set up on-site oxygen generation plants in hospitals and clinics. Loans up to ₹2 Crore were available, and businesses with days past due up to 90 days as of 31 March 2021 were eligible.

Interest rates were capped at 7.5% for this version. This has a 6-month moratorium period.

Key Factors About ECLGS

After learning about the versions of ECLGS and what it is, let’s look at some important facts about the scheme -

• This scheme is fully backed by the government, making it very secure. 

• Loans provided to business enterprises or MSMEs formed as sole proprietorships, partnerships, registered companies, trusts, or Limited Liability Partnerships (LLPs) will be eligible under the respective scheme, as long as they fall within specific sectors.

• Business enterprises or MSMEs that need to have GST registration should be registered to be eligible for the scheme. It does not apply to businesses that are not required to get GST registration.

• Borrower accounts with NPA or SMA-2 status as of 29 February 2020 will be ineligible for the ECLGS 1.0, 2.0, and 3.0.

• No processing fees, foreclosure, or prepayment penalties are required.

• No need for additional collateral.

• Repayment periods can be up to 5 years.

• The loan amount can be used for paying salaries, working capital, clearing supplier dues, and any other business expenses.

What are the Objectives of the Emergency Credit Line Guarantee Scheme?

During the country's fight against the COVID-19 pandemic, MSMEs in manufacturing and other sectors suffered significant losses. To compensate for this loss, the government implemented the Emergency Credit Line Guarantee Scheme.

The major objectives of the ECLGS are:

• The National Credit Guarantee Trustee Company Limited (NCGTC) will provide 100% guarantee coverage to members of lending institutions, banks, financial institutions, and non-banking financial companies.

• MSME and MUDRA borrowers would have greater access to, and wider availability of, additional financing facilities as a result

• This emergency line of credit scheme provides MSMEs with a fully guaranteed emergency credit line in an effort to mitigate economic distress

• Also, it will provide low-cost credit to the sector, allowing small businesses to meet their operational liabilities and resume manufacturing

Once the MSMEs in India begin to function normally, India will benefit both financially and socially. This is one of the primary reasons why the government implemented this scheme.

Eligibility Criteria for the ECLG Scheme

To be eligible for a loan under the expanded Emergency Credit Line Guarantee Scheme, candidates must meet the following criteria -

• MSMEs or businesses with an annual turnover lower than ₹250 Crore (FY 2019-20), having less than ₹50 Crore in outstanding loans as of 29 February 2020.

• The borrower can get anywhere between 20%-50% of their total outstanding credit as of 29 February 2020, 31 March 2021, or 31 January 2022, as per eligibility rules.

Tenure & Interest Rates Under ECLGS

• The loan tenure is four years, and a moratorium period of one year applies to the principal amount. [The loan tenure has been extended to five years now.]

• Under ECLGS, interest rates are also capped as follows:

• 9.25% for Banks and Financial Institutions

• 14% for Non-Banking Financial Companies

• In accordance with this scheme, the National Credit Guarantee Trustee Company Limited (NCGTC) cannot charge Member Lending Institutions any Guarantee Fee