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.
The ECLGS is important for the Indian economy as it provides working capital and other financial support to Micro, Small, and Medium Enterprises (MSME) subsectors. It was launched as part of the COVID-19 financial relief package.
The scheme provides support by providing a 100% guarantee against any loss suffered by Member Lending Institutions due to non-repayment by borrowers.
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 -
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.
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.
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.
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.
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.
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.
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.
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
ECLGS‐1.0 provides member lending institutions with a 100% guarantee in respect of eligible credit facilities they extend to their borrowers. The total amount of credit outstanding (fund-based only) across all lending institutions and the number of days past due as of February 29, 2020 was Rs.50 crore and up to 60 days, respectively.
The tenure for ECLGS 1.0 is 48 months, including a 12-month principal moratorium, and the principal should be repaid in 36 equal installments after the moratorium period ends.
The ECLGS2.0 is a guarantee scheme for member lending institutions that provides 100% guarantee for credit extended to borrowers in the 26 sectors identified by the Kamath Committee on Resolution Framework, dated April 9, 2020, and the healthcare sector, whose total credit outstanding (fund based only) across all lending institutions and days past due as of February 29, 2020 was above Rs.50 crore but not exceeding Rs.500 crore and up to 60 days respectively.
The tenure for ECLGS 2.0 is 60 months, including a 12-month principal moratorium, and the principal should be repaid in 48 equal installments after the moratorium period ends.
ECLGS‐3.0 is a scheme for providing a 100% guarantee to member lending institutions in respect of eligible credit facilities they extend to their borrowers in the hospitality, tourism, leisure, and sporting industries. As of February 29, 2020, the total outstanding balance across all lending institutions is Rs. 500 crore and the days past due are up to 60 days.
The tenure for ECLGS 3.0 is 72 months, including a 24-month principal moratorium, and the principal should be repaid in 48 equal installments after the moratorium period ends.
The Indian government extended the scheme.
As part of the 4.0 version, 100% guarantees are provided for loans of up to Rs 2 crores at a 7.5% interest rate to hospitals, nursing homes, clinics, and medical colleges. It is granted for the establishment of on-site oxygen generation plants. Borrowers can receive up to 40% additional ECLGS assistance or Rs.200 crore whichever is lower than ECLGS-3.0.
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