One of the biggest issues for MSME exporters in India is that they do not have good and easy access to sufficient and timely low-cost credit. With the potential of export orders and increasing demand from overseas for their products and services, there are opportunities for expansion for MSMEs, but they face a problem when it comes to accessing export working capital; because of the lack of acceptable collateral, which limits the ability of MSMEs to grow their exports or enter into new markets.
The use of collateral is also important to lenders in providing export financing, since collateral provides an additional layer of protection against the lender’s exposure to credit risk, however, for many MSME exporters, especially first time exporters and MSMEs that are still growing, there are often few options available to provide tangible collateral, in order to obtain export linked working capital finance.
In order to address these structural gaps the Indian government has established the Collateral Support for Export Credit initiative, effective immediately under the EPM, Niryat Protsahan, as part of its Export Promotion Mission. The objective of the initiative is to assist in reducing the collateral constraints experienced by MSMEs and enhance their access to export linked working capital finance, through a structured credit guarantee framework.
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What Is Collateral Support for Export Credit?
Targeted support for Collateral Support for Export Credit is designed to allow MSME exporters to obtain export related working capital loans by reducing their collateral burden in obtaining an export loan.
A component of the lender’s risk is protected via a credit guarantor mechanism, which allows lenders to make export loans even when the exporter has limited or no physical collateral. This guarantee support will be available only to export linked working capital facilities so that the support is tied to export activity.
The initiative aims to reduce the barriers to formal export financing for a greater number of MSME exporters by sharing risk with lending institutions and a Government backed guarantor.
Objectives of the Collateral Support Initiative
The initiative was initiated with a number of key goals:
- The increase of availability of formal export finance to MSME
- The provision of support to the exporter that is in need of limited collateral security such as micro and small enterprise
- The encouragement of Banks to provide export finance utilizing structured risk sharing arrangements
- The strengthening of India’s MSME Export Ecosystem by the removal of obstacles to finance
In conjunction, the above stated goals will lead to the making of export finance more inclusive, more predictable, and more scalable.
Implementation Framework
Collateral Support was to be rolled out by the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) via the Collateral Support initiative.
Aspects of this structure included:
- Operationalizing via pilot projects to enable faster implementation and testing
- Oversight of the policy by the Department of Commerce
- Coordination of administration by the Directorate General of Foreign Trade (DGFT)
- Using an established institutional and digital process for tracking and compliance
By establishing a three-tiered system in terms of policy authority, guarantee institution and lending bank, a high degree of coordination can occur among these entities.
Key Features and Benefits for MSME Exporters
Clearly defined Guarantee Coverage/Benefits:
- Credit Guarantee Coverage:
- Up to 85% for Micro/Small Enterprise
- Up to 65% for Medium Enterprise
- Maximum Guarantee Ceiling:
- ₹10 Crore Exporter in FY 2025–26
- Coverage Scope:
- Strictly Working Capital Loans Relating to Exports Only
- Additional Support for MSEs:
- Provided Above & Beyond Existing CGTMSE Schemes for Export Credit
As a result of lessening the collateral requirement, this initiative allows MSME Exporters to have greater credit availability consistent with their export capability.
Eligible Exporters Under the Scheme
The exporter types eligible in this category are:
- Manufacturer Exporter of an MSME
- Merchant Exporter of an MSME
To be eligible for mandatory compliance with the above, each of these types must have:
- A valid IEC (Importer-Exporter Code)
- A current Udyam registration as an MSME
- This will only apply to export of goods (merchandise).
Each of the exporter types listed above must remain eligible during all times they receive support under this program.
Eligible Export Products (Positive List)
Limitations apply for eligibility to receive the benefits of the program; such as all products are limited to those identified on the positive list of six digit HSN tariff lines that have been approved by the government. The approval list is reviewed from time-to-time with regard to:
- The percentage of MSME’s involved in each line item.
- The percentage of total exports being generated through each line item.
- The amount of labour required per unit produced.
Additionally, there is no minimum dollar value (or quantity) of exports, therefore, both larger and smaller exporters can be approved for the program provided they fall within the approved tariff lines.
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Eligible Member Lending Institutions
Member Lending Institutions (MLIs), which are registered with CGTMSE and include:
- Scheduled Commercial Banks (SCBs)
- Public Sector Banks
- Private Sector Banks
- Foreign Banks
- Other registered financial institutions that have been selected by CGTMSE.
These lending institutions serve as a first point of contact for exporters to obtain financing from, and in addition, they are responsible for the initial credit evaluation process of exporter’s loan applications, and for facilitating all necessary documentation for CGTMSE to issue guarantees on their behalf.
Nature of Assistance and Guarantee Structure
Guarantee support for exporters will be offered on an export sanction working capital loan in the form of a percentage of the total sanction amount.
Different treatments apply based upon the category of exporter:
- Micro & Small Enterprises:
- Combined coverage via the CGTMSE (Credit Guarantee Fund Trust for Micro & Small Enterprises) along with DGFT backed support
- Medium Enterprises:
- Coverage via DGFT backed support only
This guarantee will be applied only to export linked working capital facilities; thus ensuring that public funds are being used efficiently for their intended purpose.
Online Filing of Intent on DGFT Portal
Only eligible exporters will be allowed to submit their intent to export through a web-based process prior to submitting for export financing. Requirements that need to be fulfilled by the exporter include:
- A mandatory online submission of intent to export
- The generation of a Unique Identification Number (UIN)
- Some additional documentation such as:
- IEC number
- Udyam Certificate
- Financials certified by CA
- Purchase order from the buyer to export
The intent submitted by the exporter is in effect until the end of the corresponding fiscal year.
Loan Sanction and Guarantee Approval Process
The procedure is executed in an organized order;
- Credit evaluation from the lender.
- The MLI submits a guarantee application to CGTMSE for approval.
- Issuance of the guarantee by CGTMSE upon approval.
- Payment of the annual guarantee fee (AGF) to CGTMSE for the guaranteed amount.
The goal of this process is to reduce the complexity of procedures for exporters while ensuring that lenders have complete responsibility for making credit decisions.
Governance, Monitoring and Oversight
There is a multi-level oversight mechanism for this initiative:
- Trade finance sub-committee
- DGFT (Directorate General of Foreign Trade) and CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) monitoring
- Clearly defined claim, recovery and auditing mechanisms
Transparency, accountability and digital tracking are emphasized throughout.
Pilot Roll-out and Stakeholder Consultation
The Scheme is being rolled out as a pilot. All stakeholders are invited to provide comments and suggestions regarding the Scheme, which may be submitted through the consultation provision included in the 2023 Foreign Trade Policy (FTP), within the thirty-day consultation period.
The Pilot will run concurrently with an assessment of stakeholder feedback, to enable timely review and revision of the Guidelines.
Significance of the Scheme for MSME Exporters
Collateral Support will deliver the following advantages in the longer term:
- Banks will be less reliant upon physical collateral
- Better access to bank finance will be provided to businesses.
- Lending will occur within a risk-reduced banking environment.
- A sustained increase in MSME’s export participation will occur.
This will support an increase in logistics driven exports that are larger and executed with less interruption.
FAQ
1. What are the goals of the Collateral Support for Export Credit Program?
The program is designed to increase access to export-related working capital finance for MSME exporters who have traditionally had limited access to collateralized working capital due to a lack of sufficient collateral to pledge; and by providing a shared credit risk mechanism between lenders and government that reduces the lender’s exposure to that credit risk via a structured guarantee mechanism.
2. Will the Collateral Support be available for all types of loans?
No. The Collateral Support will only be available for export linked working capital loans. Domestic working capital loans and non-export related credit facilities are not covered by the Collateral Support.
3. Are there eligibility criteria for availing of the Collateral Support?
Eligible applicants for the Collateral Support are MSME manufacturer exporters and MSME merchant exporters registered in the Central Government’s “MSME Udyam Registration” system and possessing a valid Import Export Code (“IEC”) issued by the Directorate General of Foreign Trade (“DGFT”). The Collateral Support is only applicable to merchandise exports.
4. How much of the loan amount can be guaranteed under the Collateral Support Scheme?
Guaranteed Coverage Under the Scheme:
- Up to 85 percent of the sanctioned loan amount for Micro and Small Enterprises;
- Up to 65 percent of the sanctioned loan amount for Medium Enterprise;
- A Maximum Ceiling of Rs. 10 Crore Per Exporter for the Fiscal Year 2025-26.
5. Which organizations will implement the Collateral Support Scheme?
The Collateral Support Scheme will be implemented through the Credit Guarantee Fund Trust for Micro and Small Enterprises (“CGTMSE”) with Policy and Administrative Oversight provided by the Department of Commerce and DGFT.
6. Do exporters need to submit an Intent to Export on the DGFT Portal?
Yes. All eligible exporters must first submit an online Intent to Export on the DGFT Portal prior to submitting an application for Export Credit. Once submitted, a Unique Identification Number (“UIN”) will be generated and required to proceed with processing.
7. If an exporter is already using other CGTMSE Schemes, will they still qualify for the Collateral Support?
Yes. The Collateral Support Scheme will provide additional collateral support for export credit to Micro and Small Enterprises in addition to existing CGTMSE Schemes, subject to compliance with conditions as notified.
8. Is the Collateral Support a Permanent Program or Time-Bound?
The Collateral Support Scheme is currently being implemented on a Pilot Basis. Whether the program continues, is modified, or expanded will be based upon the results of the pilot program and comments from stakeholders received during the Consultation Period.
Conclusion
This Initiative for Inclusive Export Financing for Export Credit Collateral Support in the context of Niryat Protsahan has established a new precedent for the development of an inclusive export financing program. This initiative will address the collateral constraint on exporting by creating a formalized structure with regard to guarantees, thereby providing an improved financial base for MSME’s to become exporters.
Active participation from eligible MSME’s is expected throughout the pilot, and as refinements to the program are implemented subsequent to the pilot, collateral support will have emerged as one of the key pillars of India’s export promotion structure that will enable sustainable export led growth.