An important objective of the Project is to encourage banks to augment higher credit flow to MSME Sector. For this, the Project has developed innovative financial mechanisms named Risk Sharing Facility under which the credit risk is shared on a pari passu basis between Guaranteeing entity and Member Lending Institutions (MLIs). By sharing the credit risk, the RSF helps them build up a track record of lending, giving them the much-needed confidence and encouragement to scale-up lending to MSMEs, and to price these loans more appropriately, with sector-wide demonstration effects.

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) has been instrumental in implementing the pilot Project. It has signed MOUs with eight Member Lending Institutions (SIDBI, UBI, BOB, BOI, PNB, Canara Bank, United Bank, SBI):

Guarantee cover to 64 cases for Rs. 475.4 million spanning over in 14 states has been provided.
 
In view of satisfactory progress of the pilot scheme, the CGTMSE has institutionalized the scheme by enhancing guarantee coverage from Rs 5 million to Rs 10 million.

An amount of USD 5 million has already been utilized under WBLOC towards RSF while under the WBLOC-Additional, USD 10 million has been earmarked for scaling up RSF.