Collateral free loans have been given to small businesses under emergency credit line guarantee schemeAs many as 117.87 lakh businesses have been provided 100 per cent guaranteed collateral free loans under the emergency credit line guarantee scheme (ECLGS) till March 11, 2022, according to official data.
Out of these, around 95 per cent were micro small and medium enterprises (MSMEs).Government gave this information recently in Parliament.
However what exactly is ECLGS and how does it help small businesses, especially during the lockdown period, when disruptions had seriously impacted such entities, needs to be known.So let us find out more about this scheme.What is ECLGS?Government had launched ECLGS in May 2020 when the Coronavirus-induced nation-wide lockdown was in place and the scheme was announced as part of the Aatma Nirbhar Bharat package.The ECLGS scheme, which was specially aimed at supporting MSMEs - since these were the worst hit by the disruption - provides100 per centguarantee to member lending institutions (MLIs) in respect of the credit facility extended by them under the scheme to eligible borrowers.Finance Minister Nirmala Sitharaman while presenting the union budget for 2022-23, had announced that ECLGS will be extended till March 2023, and subsequently it is now open tillMarch 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 borrower's existing credit outstanding and there is no fresh appraisal undertaken by lenders since additional credit is sanctioned over and above the credit facilities already assessed.Also, the interest rate is capped with a view to lower the cost of credit and loans are sanctioned without any processing charges, pre- payment charges and guarantee fee.