International Journal For Multidisciplinary Research

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Governance, Moral Hazard, and Accountability in MSME Credit Guarantee Schemes: A Critical Study of CGTMSE and Rising NPAs in India

Author(s) Mr. Melson D'Silva, Dr. Nagaraja V
Country India
Abstract Micro, Small and Medium Enterprises (MSME) are a key pillar of the Indian economy and see an increase in their revenues contribute toward employment creation, industrial development, export, entrepreneurship and inclusive development. Despite the many advantages of taking out a formal loan, many MSMEs struggle to access credit from financial institutions because of the absence of collateral security, lack of financial records and high risk of lending. To overcome these problems the Government of India has established a Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) which is a promotional institution for lending with partial guarantee cover to borrower default. The objective of the scheme is to boost financial inclusion, and make credit access more readily available for MSMEs.

But there have been some concerns about the manner of operation of the credit guarantee that have spurred governance-related issues such as governance gaps, weak institutional oversight, irregularities in procedures, and poor accountability systems. In some cases, the guarantee protection has led to a lessening of credit assessment and repayment discipline, causing a moral hazard in guaranteed lending systems. The weaknesses are now seen in the growing rate of Non-Performing Assets (NPAs) in guaranteed MSME loans. This study critically analyses the governance and accountability structure of CGTMSE and ascertains the possibility of achieving rule of law and discipline in access to credit with financial inclusion and long term financial stability under the CGTMSE.
Keywords MSME Sector, CGTMSE, Credit Guarantee Schemes, Non-Performing Assets (NPAs), Governance, Moral Hazard, Accountability, Credit Risk, Financial Inclusion.
Field Sociology > Administration / Law / Management
Published In Volume 8, Issue 3, May-June 2026
Published On 2026-05-09
DOI https://doi.org/10.36948/ijfmr.2026.v08i03.77902
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