Understanding GECL Loan – Benefits and Full Form

The contribution of micro, small and medium-sized enterprises (MSMEs) to the Indian economy, cannot be stated enough. They contribute roughly 33% of the country’s total gross domestic product (GDP), making them a vital cog in the nation’s development wheel.

However, despite their contribution, many MSMEs still find it challenging to get access to capital, severely limiting their growth and development. The Government of India, in a bid to provide financial support to MSMEs, introduced the GECL scheme in the year 2020.

Continue reading to find out all about this unique scheme, the GECL full form and what it means for micro, small and medium-sized enterprises in India.

Full Form of GECL

The term GECL is an acronym that stands for Guaranteed Emergency Credit Line. It is a part of the Government of India’s Emergency Credit Line Guarantee Scheme (ECLGS) and was introduced in the year 2020 to provide financial support to MSMEs given the disruption caused by the COVID-19 pandemic.

Meaning of GECL

The Guaranteed Emergency Credit Line (GECL) is a credit guarantee scheme where the Government of India, through the National Credit Guarantee Trustee Company (NCGTC), provides a 100% guarantee to the tune of ₹3 lakh crore to Member Lending Institutions (MLIs).

The Member Lending Institutions, in turn, would provide term loans and working capital loans to eligible MSMEs to tide over the financial disruptions caused by the COVID-19 pandemic. Thanks to the Government of India guarantee, MLIs can freely provide credit facilities to MSMEs without any fear of default.

What is a GECL Loan?

The GECL loan is a credit facility provided to eligible enterprises to meet their operational expenses and sustain their business. Unlike traditional business loan, GECL loans do not require any collateral or third-party guarantee, making them easily accessible to a wide range of enterprises.

Versions of the GECL/ECLGS Scheme

Since the GECL scheme for MSMEs was first introduced in the year 2020, it has undergone major changes from time to time. Here’s a quick overview of the various versions of the Guaranteed Emergency Credit Line facility.

1. GECL 1.0

Introduced in May 2020, the first iteration of the GECL scheme for MSMEs was aimed at providing funding to eligible enterprises affected due to the COVID-19 pandemic. The maximum amount of loan that businesses were entitled to was limited to 20% of their total outstanding credit subject to a limit of ₹50 crores as of February 29, 2020.

2. GECL 1.0 (Extension)

The GECL loan scheme was modified slightly to extend the benefits to more MSMEs. According to the extended version of the scheme, borrowers could avail of a loan of up to 30% of their total outstanding credit subject to a limit of ₹50 crores as of February 29, 2020, or as of March 31, 2021, whichever is higher.

3. GECL 2.0

The second iteration of the GECL scheme for MSMEs included 26 stressed sectors due to COVID-19, identified by the Kamath Committee on Resolution Framework and the Healthcare sector. Eligible borrowers could avail of a loan of up to 30% of their total outstanding credit subject to a limit of ₹500 crores as of February 29, 2020.

4. GECL 2.0 (Extension)

Similar to the GECL 1.0 (Extension), the second version of the scheme was also extended to include more enterprises. Eligible borrowers could now avail of a loan of up to 30% of their total outstanding credit subject to a limit of ₹500 crores as of February 29, 2020, or as of March 31, 2021, whichever is higher.

5. GECL 3.0

The third iteration of the GECL loan scheme was geared towards MSMEs operating in the civil aviation sector and hospitality and other related sectors. As per this iteration, eligible businesses could avail of a loan of up to 50% of their total outstanding credit subject to a limit of ₹200 crores as of February 29, 2020.

6. GECL 3.0 (Extension)

The extension of the third iteration of the scheme continued to cover the same enterprises. However, the quantum of loans that could be availed were changed. Eligible businesses in the hospitality and related sectors could now avail of a loan of up to 50% of their total outstanding credit subject to a limit of ₹200 crores as of February 29, 2020, March 31, 2021, or January 31, 2022, whichever is higher.

Eligible businesses in the civil aviation sector could avail of a loan of 50% of their total outstanding credit subject to a limit of ₹400 crores as of February 29, 2020, March 31, 2021 or January 31, 2022, whichever is higher.

Airlines, meanwhile, could borrow up to 100% of their total outstanding credit subject to a limit of ₹1,500 crores as of February 29, 2020, March 31, 2021, or January 31, 2022, whichever is higher.

7. GECL 4.0

The fourth and final version of the scheme was introduced to cover enterprises manufacturing liquid oxygen and oxygen cylinders. It included nursing homes, hospitals, medical colleges, clinics and business units. Eligible borrowers could avail of a loan of up to ₹2 crores for setting up a new oxygen-producing plant.

GECL Scheme for MSMEs

If you’re a business owner, understanding the GECL scheme for MSMEs is crucial to fully appreciate the extent of the financial support that small businesses have in India. Here’s a comprehensive deep-dive into what the scheme is.

Overview of the GECL Scheme

The Guaranteed Emergency Credit Line scheme was introduced to provide financial support to MSMEs during and after the COVID-19 pandemic by offering them collateral free loans of up to 20% of their total outstanding credit as of February 29, 2020.

These collateral-free loans were provided by Member Lending Institutions (MLIs) and are backed by a 100% guarantee coverage provided by the Government of India through the National Credit Guarantee Trustee Company Limited (NCGTC).

The 100% credit guarantee essentially means that the government would compensate Member Lending Institutions for any losses that they incur due to the non-repayment of the GECL loans availed by borrowers.

Objectives of the GECL Scheme

The unprecedented nature of the COVID-19 pandemic and the ensuing lockdowns enforced to curb the spread of the virus led to widespread disruptions in the business operations of micro, small and medium-sized enterprises. The GECL was introduced to financially protect small businesses from the ill effects of such interruptions. Here’s a quick look at some of its key objectives.

• To ensure that the business operations of MSMEs are uninterrupted due to COVID-19 or any other constraints.
• To preserve jobs and sustain the livelihoods of the various employees of MSMEs.
• To stimulate economic activity and growth in the MSME sector.

Interest Rates of GECL Loans

The rate of interest on GECL loans tends to vary depending on factors such as the phase in which the loan was borrowed and whether the borrowing is an MSME or non-MSME. Let’s take a closer look.

GECL Phase	MSME	Non-MSME
GECL 1.0, GECL 1.0 (Extension), GECL 2.0, GECL 2.0 (Extension), GECL 3.0, GECL 3.0 (Extension)	Repo Linked Lending Rate (RLLR) + additional rate subject to a maximum of 9.25% (for banks) and 14% (for NBFCs).	Marginal Cost of Funds Lending Rate (MCLR) + additional rate subject to a maximum of 9.25% (for banks) and 14% (for NBFCs).
GECL 4.0	The maximum interest rate is limited to 7.5%	The maximum interest rate is limited to 7.5%.

Eligibility Criteria for Availing the GECL Scheme

Similar to the interest rate on GECL loans, the eligibility criteria that borrowers need to satisfy to apply for a loan under the scheme varies depending on the phase in which the loan was availed. Let’s take a closer look at the eligibility criteria.

GECL Phase	Eligibility Criteria
GECL 1.0	Business enterprises, MSMEs and individuals with outstanding loan dues less than or equal to 60 days past the due date as of February 29, 2020.
GECL 1.0 (Extension)	All borrowers, new and existing, eligible under GECL 1.0 with outstanding loan dues less than or equal to 60 days past the due date as of March 31, 2021.
GECL 2.0	Business enterprises, MSMEs and individuals operating in the 26 stressed sectors due to COVID-19, identified by the Kamath Committee with outstanding loan dues less than or equal to 60 days past the due date as of February 29, 2020.
GECL 2.0 (Extension)	All borrowers, new and existing, eligible under GECL 2.0 with outstanding loan dues less than or equal to 60 days past the due date as of March 31, 2021.
GECL 3.0	Business enterprises, MSMEs and individuals operating in the civil aviation sector and hospitality and related sectors with outstanding loan dues less than or equal to 60 days past the due date as of February 29, 2020.
GECL 3.0 (Extension)	All borrowers, new and existing, eligible under GECL 3.0 with outstanding loan dues less than or equal to 60 days past the due date as of March 31, 2021, or January 31, 2022.
GECL 4.0	Business enterprises, MSMEs and units manufacturing oxygen cylinders and liquid oxygen with outstanding loan dues less than or equal to 90 days past the due date as of March 31, 2021.

Quantum of Loan Under the GECL Scheme

The quantum of the loan that can be availed under the GECL scheme for MSMEs and non-MSMEs also varies depending on the different phases of the scheme. Here’s a quick overview of the maximum amount of loan that can be availed.

GECL Phase	Maximum Loan Amount
GECL 1.0	₹15 crores
GECL 1.0 (Extension)	₹15 crores
GECL 2.0	₹150 crores
GECL 2.0 (Extension)	₹150 crores
GECL 3.0	₹400 crores
GECL 3.0 (Extension)	₹400 crores
GECL 4.0	₹2 crores

Conclusion

Thanks to the GECL scheme for SMEs, many struggling enterprises have successfully navigated the tricky financial landscape brought in by the COVID-19 pandemic and other economic disruptions. By providing easy access to collateral-free credit, the scheme has enabled MSMEs to sustain their businesses, retain employees and contribute to India’s economic recovery. Platforms like Lendingkart give enterprises the option for successful funding in times of need. Lendingkart’s suite of solutions, including Lendingkart 2Gthr, Xlr8, Cred8, and Collec10 seamlessly provides MSME operations financial support. This cohesive ecosystem not only simplifies finance for MSMEs but also propels their growth into the future.

Frequently Asked Questions

1. What is the Emergency Credit Line Guarantee Scheme?

The Emergency Credit Line Guarantee Scheme (ECLGS) is a special credit guarantee scheme that was introduced by the Government of India to provide financial assistance to MSMEs affected by the COVID-19 pandemic.

2. Who are the MLIs under the scheme?

Member Lending Institutions or MLIs under the GECL scheme for MSMEs included Scheduled Commercial Banks (SCBs), Non-Banking Financial Companies (NBFCs) and other financial institutions.

3. What will be the definition of FIs for the purpose of this scheme?

For the GECL scheme, the definition of Financial Institutions (FIs) would be the same as in use by the Reserve Bank of India (RBI). The RBI classifies the following entities as financial institutions – All India Development Banks, Specialised Financial Institutions, investment institutions, refinance institutions, State Finance Corporations, State Industrial Development Corporations and Export Credit Guarantee Corporation.

4. Will the scheme also cover borrowers under PMMY?

Yes. The GECL scheme for MSMEs also covers entities that have taken Mudra loans under the Pradhan Mantri Mudra Yojana (PMMY).

5. What would be the guarantee of coverage under the ECLGS Scheme?

As per the ECLGS scheme, the Government of India would provide a 100% credit guarantee to Member Lending Institutions (MLIs) that provide GECL loans to eligible MSMEs.

6. Is there a moratorium period that the ECLGS scheme mandates?

Yes, there is a moratorium period for all the loans that were availed under the ECLGS scheme. The moratorium period ranges from 6 months to 24 months depending on the version of the scheme under which the loan was availed.

7. What is the interest rate for GECL loans secured?

The interest rate for GECL loans varies depending on the phase of the scheme under which the loan was availed. For GECL 1.0 to 3.0, including their respective extensions, the interest rate for MSMEs was the Repo Linked Lending Rate (RLLR) + additional rate subject to a maximum of 9.25% (for banks) and 14% (for NBFCs).

For GECL 1.0 to 3.0, including their respective extensions, the interest rate for non-MSMEs was the Marginal Cost of Funds Lending Rate (MCLR) + additional rate subject to a maximum of 9.25% (for banks) and 14% (for NBFCs). For GECL 4.0, the maximum interest rate was limited to 7.5%.

8. Is GECL working capital?

Yes, eligible businesses can avail of GECL loans to meet their working capital requirements. In addition to working capital, businesses may also use them to meet their regular term loan needs as well.