In recent news, the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry, has introduced a noteworthy initiative for the startup community – Credit Guarantee Scheme for Startups (CGSS). This scheme aims to provide much-needed financial support to startups, especially those struggling due to the pandemic’s impact and the consequent rise in interest rates.
Decoding the Credit Guarantee Scheme for Startups
The CGSS has been established with the objective of providing credit guarantees to loans extended by Member Institutions (MIs) to fund eligible startups. The MIs include several financial intermediaries such as banks, financial institutions, and Non-Banking Financial Companies that engage in lending or investing activities and meet the eligibility criteria under the CGSS.
The scheme will play a crucial role in offering collateral-free debt funding to startups, many of which are hindered by a lack of easily accessible liquidity.
Features of CGSS
The credit guarantee cover under the CGSS varies and can be either transaction-based or umbrella-based. For each startup, the exposure is capped at Rs 10 crore per instance or the actual outstanding credit amount, whichever is less.
While the transaction-based guarantee cover is obtained by MIs on an individual eligible borrower basis to promote lending by Banks/ NBFCs, the umbrella-based guarantee is designated for Venture Debt Funds (VDF) registered under Alternative Investment Funds (AIF) regulations of Securities and Exchange Board of India (SEBI).
Startup Landscape in India
India holds a significant place in the global startup ecosystem, ranking 3rd after the US and China. With approximately 75,000 startups, India boasts a robust and growing startup culture.
Notably, nearly half of these startups originate from tier-2 and tier-3 cities. In addition, India has fostered over 105 unicorns, with 44 emerging in 2021 and 19 in 2022. These startups span various sectors such as IT, agriculture, aviation, education, energy, health, and space.
Other Initiatives Supporting Startups
To stimulate further growth, the Indian government has launched several initiatives. These include National Initiative for Developing and Harnessing Innovations (NIDHI), Startup India Action Plan (SIAP), Ranking of States on Support to Startup Ecosystems (RSSSE), and Fund of Funds for Startups (FFS). These programs aim to provide a nurturing environment for startups and encourage innovative entrepreneurship across the country.
The introduction of CGSS by the DPIIT is a significant stride towards fueling the growth of startups in India. With continuing efforts and supportive initiatives, the future of the Indian startup ecosystem looks promising.