Emergency Credit Line Guarantee Scheme (ECLGS)

The sudden arrival of the covid-19 pandemic, followed by a complete lockdown everywhere, affected the global Economy significantly. Out of all the domains, the Small, Medium, and Micro-Enterprises (MSMEs) were the ones that had to bear significant financial losses.

As obvious as it can be, business enterprises usually take loans from banks and non-banking financial companies or institutions to fulfil their requirements and demands. Since covid-19 led to the collapse of several businesses, most of them could not even meet their basic needs, let alone return the debts taken from the banks.

Therefore, to provide financial aid to these business enterprises, the Finance Ministry of India came up with the Emergency Credit Line Guarantee Scheme (ECLGS) idea. Let's dive deeper into this scheme and find out more in this article.

About Emergency Credit Line Guarantee Scheme (ECLGS)

The Emergency Credit Line Guarantee Scheme was introduced in May 2020 to deal with this pandemic hit economy. This scheme aims to help such Micro, Small, and Medium-scale Enterprises (MSMEs) In India that had to bear a major hit. The entire budget of the scheme was Rs. 3 lakh crores that are offered in the form of unsecured loans, which the government completely backs.

Objectives of ECLGS Scheme

The main objective of this scheme is to provide financial help so that people can restart their businesses. Apart from this, it intends to meet the operational liabilities that were affected due to covid-19.

With this specific scheme, people working in the business sector now can apply for loans without any worry about submitting Collateral security. As of 29 February 2020, excluding non-fund-based exposures, the borrower can get up to 20% of their outstanding credit.

Let's understand this scheme with a detailed example. Suppose you had Rs. 1 lakh in your account on 29 February 2020. This way, you can get a loan of 20% of Rs. 1 lakh, which is Rs. 20,000 under this scheme without any security or guarantee.

The time for returning the amount is within 6 years. During the first year, you have to pay only the interest on the amount. The remaining 5 years are for returning the principal amount and the interest.

Features of the ECLGS Scheme

Some of the key features of the ECLGS scheme are listed below:

• You can avail of an emergency credit line that can be extended up to 20% of the amount
• The scheme provides a 100% coverage guarantee on the additional amount sanctioned by the emergency credit line
• The interest rate for the ECLGS scheme is capped at 9.25% for banks and 14% for NBFCs
• The tenure, from the date of disbursement, is 4 years
• The period of the moratorium is 12 months on the principal amount
• The scheme is free of charges and guarantees fees to be charged by MLIs and NCGTCs

Beneficiaries of the ECLGS Scheme

The report says that the government will extend the credit facilities so that small businesses can take advantage of the scheme more effectively. The ECLGS scheme has successfully supported more than 10 million enterprises so far. An enterprise needs to follow specific guidelines to take advantage of this scheme. Also, only those who have already taken loans from the banks or the existing customers are eligible for taking the benefits of this scheme. Having said that, jotted down below are some of the primary beneficiaries of this scheme:

• MSMEs constituted as a proprietorship, a registered company, business enterprises, limited liability partnerships, trusts are eligible for this scheme
• Those who have already taken individual loans under the Pradhan Mantri Mudra Yojna can apply under this scheme as well
• MSME borrowers with a loan amount up to Rs. 25 crores before 29 February 2020 can apply too

Apart from this, all borrowers should have their GST registered to apply for credit under this scheme. Also, the borrower's accounts should be classified as SMA-0, SMA-1 or regular.

Varying Parts of the ECLGS Scheme

To diversify the funding and make it easier for beneficiaries to claim the credit, this scheme was divided into varying parts, such as:

Under ECLGS 1.0

The assistance of up to 30% of the total outstanding credit was provided to the eligible borrowers as of 29 February 2020 or 31 March 2021. Its tenure was 48 months, and the principal moratorium was included for the first 12 months. After the moratorium period, the principal amount had to be repaid in 36 equal instalments.

Under ECLGS 2.0

The eligible borrowers from 26 identified sectors based on the healthcare sector and Kamath committee got the assistance of up to 30% of the total outstanding credit. Its tenure was 60 months, and the principal moratorium was included for the first 12 months. After the moratorium period, the principal had to be repaid in 48 equal instalments.

Under ECLGS 3.0

The eligible borrowers from hospitality, leisure & sporting, travel & tourism, civil aviation, etc., got 40% of their total outstanding limit. Its tenure was 72 months, and the principal moratorium was included for the first 24 months. After the moratorium period, the principal had to be repaid in 48 equal instalments.

Under ECLGS 4.0

As of 31 March 2021, a maximum of up to Rs. 2 crore has been provided to existing medical colleges, hospitals, nursing homes, clinics involved in Manufacturing oxygen cylinders, liquid oxygen, etc.

This financing scheme is backed by the government, which doesn't include part-prepayment fees, processing charges, or foreclosure. Under this scheme, there's no requirement for debtors to pledge any collateral to avail funds.

The Bottom Line

Undoubtedly, the covid-19 led to several losses. Although all sectors and industries were impacted, the manufacturing Industry, transport, delivery, distributors and retailers were the most affected ones.

During these dire times, the ECLGS scheme by the Indian government comes as a ray of hope. Due to the current unexpected situation, it helps MSMEs restart their businesses, meet operational liabilities, and continue functioning.