The Department of Industrial Policy and Promotion’s (DIPP) proposed credit guarantee fund for startups is likely to get Cabinet approval by September. The fund, with an initial corpus of Rs 2,000 crore, will be formulated to facilitate collateral-free loans up to Rs 5 crore for one startup.
“The Rs 2000 crore allocated for credit guarantee scheme will be spent over a period of 3 years. We plan to give guarantee for loans worth Rs 15000 crore for startups…we will leverage it to the extent of almost Rs 15,000 crore,” a senior government official told Moneycontrol.
The aim of the government is to facilitate smooth funding for eligible borrower—a startup recognised by Department of Industrial Policy and Promotion (DIPP)—the official said, adding that access to capital has been one of the biggest challenges faced by startups.
“Member lending institutions (MLIs) may provide loans to up to any amount required by an eligible borrower. However, under the scheme the exposure for availing credit guarantee shall be limited to Rs.500 lakh per eligible borrower. Such loan will be extended by MLIs without any collateral security and/or third party guarantee,” Commerce and Industry Minister Nirmala Sitharaman had said about the fund in a written reply to the Rajya Sabha last month.
The credit guarantee fund was announced by Prime Minister Narendra Modi in January, 2016 at the Start-up Action Plan, to extend greater financial support to these companies.
As of now, more than 1,300 startups have been recognised by DIPP. A Rs 10,000 cr ‘funds of funds’ was also announced by Modi in January last year for providing funding support to startups over a period of four years. The fund, managed by Small Industries Development Bank of India (SIDBI), has sanctioned Rs 623.50 cr to alternate investment funds. These funds have in turn invested in 62 startups.
Start-ups and entrepreneurship and have been one of the key focus area for the Prime Minister. Last week, Modi met 200 startup-up entrepreneurs to take inputs from them on a variety of topics including, jobs, health, nutrition, education and digital India. The aim of the meeting was also to know how technology could be better used to deliver services for the countrymen in these spaces.
Read more: MoneyControl