Collateral-free loans have been made to small businesses under an emergency credit line guarantee scheme
As many as 117.87 lakh companies have secured 100 percent secured collateral-free loans under the Emergency Credit Line Guarantee Scheme (ECLGS) until March 11, 2022, according to official data. Of these, about 95 percent were micro-small and medium-sized enterprises (SMEs).
The government recently gave this information to parliament. But what exactly is ECLGS and how it helps small businesses, especially during the lockdown period when disruptions had severely affected such entities, should be known.
So let’s learn more about this arrangement.
What is ECLGS?
The government had launched ECLGS in May 2020, when the coronavirus-induced nationwide lockdown was in place and the scheme was announced as part of the Aatma Nirbhar Bharat package.
The ECLGS scheme, which was specifically aimed at supporting SMEs – as they were most affected by the disruption – offers a 100 percent guarantee to affiliated credit institutions (MLIs) regarding the credit facility they offer under the scheme in eligible borrowers.
Finance Minister Nirmala Sitharaman had announced during the presentation of the union budget for 2022-23 that ECLGS will be extended until March 2023, and then it is now open until March 31, 2023.
How does ECLGS work?
The structure of the scheme allows easy access to credit as the lenders offer pre-approved loans based on the borrower’s existing outstanding credit and no reassessment is performed by lenders as additional credit is sanctioned on top of the already rated credit facilities.
Also, the interest rate is capped to reduce the cost of credit and loans are sanctioned without processing costs, prepayments and guarantee fees.
