Associations representing micro and small enterprises say if public sector banks did not extend loans to three-wheelers under the credit guarantee scheme, more credit would be available to them under the scheme. Their point is that the ‘three-wheeler loans' are asset-backed loans and therefore not deserving of the ‘credit guarantee scheme' which is meant for small borrowers who are not in a position to offer collateral.

This comes in the wake of banks showing keenness in giving three-wheeler loans under the scheme. Indian Bank, for instance, expects to disburse Rs 150 crore in a year's time with its tie-up with three-wheeler manufacturers such as TVS Motors and Bajaj Auto.

A three-wheeler costs about Rs 1.4 lakh, 85 per cent of the vehicle is financed by the bank and the remaining 15 per cent by the borrower. Banks feel comfortable in giving these loans to three-wheelers as they carry a 75 per cent guarantee from the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). In case the loan turns bad due to the failure of non-payment by the borrower, the bank will not suffer huge losses as CGTMSE will bear the loss. Indian Overseas Bank is also offering three-wheeler loans under the CGTMSE scheme

“I do not understand why three-wheeler loans given by banks should be covered under the CGTMSE?” asked Mr V. Jayakumar, President, Association of Micro, Medium and Small Scale Entrepreneurs.

The Tamil Nadu Small and Tiny Association, which has 1,500 members, similarly finds the three-wheeler lending intriguing. The Association's Vice-President, Mr R. Kannan, said that when micro and small enterprises find it difficult to access the credit guarantee scheme, there is no point in using the scheme for lending for asset purchases.

The CGTMSE has clarified that according to the Reserve Bank of India guidelines on priority sector lending, credit facilities extended to small service enterprises would include small road and water transport operators, and accordingly such loans sanctioned by member lending institutions are eligible for coverage under the credit guarantee scheme.

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