Prime Minister Employment Generation Programme: Best credit scheme for a Start Up

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Here I come with one of the finest credit scheme of Government of India.

The name of the scheme is Prime Minister's Employment Generation Programme.

Government of India  introduced  a new credit linked subsidy programme called Prime Minister's Employment Generation Programme (PMEGP) by merging the two schemes that were in operation till 31.03.2008 namely Prime Minister‟s Rojgar Yojana (PMRY) and Rural Employment Generation Programme (REGP) for generation of employment opportunities through establishment of micro enterprises in rural as well as urban areas.

PMEGP is a central sector scheme  administered by the Ministry of Micro, Small and Medium Enterprises (MoMSME). The Scheme is being implemented by Khadi and Village Industries Commission (KVIC), a statutory organization under the administrative control of the Ministry of MSME as the single nodal agency at the National level.

At the State level, the Scheme is being implemented through State KVIC Directorates, State Khadi and Village Industries Boards (KVIBs) and District Industries Centres (DICs) and banks. The Government subsidy under the Scheme is being routed by KVIC through the identified Banks for eventual distribution to the beneficiaries / entrepreneurs in their Bank accounts.

The Implementing Agencies, namely KVIC, KVIBs and DICs associates with reputed Non Government Organization (NGOs)/reputed autonomous institutions/Self Help Groups (SHGs)/ National Small Industries Corporation (NSIC) / Udyami Mitras empanelled under Rajiv Gandhi Udyami Mitra Yojana (RGUMY), Panchayati Raj institutions and other relevant bodies in the implementation of the Scheme, especially in the area of identification of beneficiaries, of area specific viable projects, and providing training in entrepreneurship development.

The objective of the Prime Minister's Employment Generation Scheme are as below:

i) To generate employment opportunities in rural as well as urban areas of the country through setting up of new self-employment ventures/projects/micro enterprises. 

ii) To bring together widely dispersed traditional artisans/rural and urban unemployed youth and give them self-employment opportunities to the extent possible, at their place. 

iii) To provide continuous and sustainable employment to a large segment of traditional and prospective artisans and rural and urban unemployed youth in the country, so as to help arrest migration of rural youth to urban areas. 

iv) To increase the wage earning capacity of artisans and contribute to increase in the growth rate of rural and urban employment.

The Quantum and Nature of Financial Assistance Levels of funding under PMEGP.

Categories of beneficiaries under PMEGP	Beneficiary’s contribution (of project cost)	Rate of Subsidy (of project cost)
Area (location of project/unit)		Urban	Rural
General Category	10%	15%	25%
Special (including SC / ST / OBC /Minorities/Women, Exservicemen, Physically handicapped, NER, Hill and Border areas etc.	05%	25%	35%

1) The maximum cost of the project/unit admissible under manufacturing sector is Rs. 25 lakh. 

(2) The maximum cost of the project/unit admissible under business/service sector is Rs. 10 lakh. 

(3) The balance amount of the total project cost will be provided by Banks as term loan.

Eligibility Conditions of PMEGP Beneficiaries 

(i) Any individual, above 18 years of age 

(ii) There will be no income ceiling for assistance for setting up projects under PMEGP. 

(iii) For setting up of project costing above Rs.10 lakh in the manufacturing sector and above Rs. 5 lakh in the business /service sector, the beneficiaries should possess at least VIII standard pass educational qualification.

(iv) Assistance under the Scheme is available only for new projects sanctioned specifically under the PMEGP.

(v) Self Help Groups (including those belonging to BPL provided that they have not availed benefits under any other Scheme) 

(vi) Institutions registered under Societies Registration Act, 1860;

(vii) Production Co-operative Societies and 

(viii) Charitable Trusts

Other eligibility conditions for PMEGP loan.

(i) A certified copy of the caste/community certificate or relevant document issued by the competent authority in the case of other special categories, is required to be produced by the beneficiary to the concerned branch of the Banks along with the Margin Money (subsidy) claim. 

(ii) A certified copy of the bye laws of the institutions is required to be appended to the Margin Money (subsidy) Claim, wherever necessary.

 (iii) Project cost will include Capital Expenditure and one cycle of Working Capital. Projects without Capital Expenditure are not eligible for financing under the Scheme.

 (iv) Cost of the land should not be included in the Project cost. Cost of the ready built as well as long lease or rental Workshed/Workshop can be included in the project cost subject to restricting such cost of ready built as well as long lease or rental workshed/workshop to be included in the project cost calculated for a maximum period of 3 years only. 

(v) PMEGP is applicable to all new viable micro enterprises, including Village Industries projects except activities indicated in the negative list of Village Industries. Existing/old units are not eligible (Para 29 of the guidelines refers).

The Bank will sanction 90% of the project cost in case of General Category of beneficiary/institution and 95% in case of special category of the beneficiary/institution, and disburse full amount suitably for setting up of the project.

Bank will finance Capital Expenditure in the form of Term Loan and Working Capital in the form of cash credit. Project can also be financed by the Bank in the form of Composite Loan consisting of Capital Expenditure and Working Capital. 

The amount of Bank Credit will be ranging between 60-75% of the total project cost after deducting 15-35% of margin money (subsidy) and owner‟s contribution of 10% from beneficiaries belonging to general category and 5% from beneficiaries belonging to special categories. 

Though Banks will claim Margin Money (subsidy) on the basis of projections of Capital Expenditure in the project report and sanction thereof, Margin Money (subsidy) on the actual availment of Capital Expenditure only will be retained and excess, if any, will be refunded to KVIC, immediately after the project is ready for commencement of production. 

Working Capital component should be utilized in such a way that at one point of stage it touches 100% limit of Cash Credit within three years of lock in period of Margin Money and not less than 75% utilization of the sanctioned limit. If it does not touch aforesaid limit, proportionate amount of the Margin Money (subsidy) is to be recovered by the Bank/Financial Institution and refunded to the KVIC at the end of the third year. 

Rate of interest and repayment schedule Normal rate of interest shall be charged. Repayment schedule may range between 3 to 7 years after an initial moratorium as may be prescribed by the concerned bank/financial institution.

Where to approach for the loan under PMEGP?

The beneficiary can apply through online at KVIC site and can upload all the documents.  After submission of documents online ,The Task Force will scrutinize the applications and based on the experience, technical qualification, skill, viability of the project etc., the task force will shortlist the applications and call for an interview of the applicants separately for rural and urban areas to assess their knowledge about the proposed project, aptitude, interest, skill and entrepreneurship abilities, market available, sincerity to repay and make the proposed project success. The selected candidates will be provided project formulation guidance and orientation by KVIC, KVIBs and DICs who will also assist and guide them in project formulation and submission to the concerned Bank in the area. 

Once the project is sanctioned and before the first installment of the Bank Finance is released to the beneficiary, Bank will inform the State/Regional Office of the KVIC/KVIBs/State DICs, as the case may be, for arranging EDP training  to the beneficiary, if he/she has not already undergone such training. If he/she has already undergone such training of at least 2 weeks duration, either with the training center of KVIC/KVIB /State DICs or the institutions recognized by or under the administrative control of Ministry of MSME or at any other training centre of repute, such beneficiary need not undergo further EDP training.

First installment of the loan will be released to the beneficiary only after completion of EDP training of at least 2 weeks specially designed for the purpose, which will be organized by KVIC / KVIBs / DICs or the institutions recognized by or under the administrative control of Ministry of MSME or at any other training centre of repute. Those who have already undergone training from the recognized institutions need not undergo further EDP training.

After the successful completion of EDP training arranged by the KVIC/KVIBs/State DICs, the beneficiary will deposit with the bank, the owner‟s contribution. Thereafter, the bank will release first installment of the Bank Finance to the beneficiary.

Projects sanctioned will be declared ineligible for Margin Money (subsidy) assistance if the EDP training is not completed.  After the release of Bank finance either partly or fully, Bank will submit Margin Money (subsidy) claim in the prescribed format to the designated Nodal Branch of the State/Region where KVIC has placed lump sum deposit of Margin Money (subsidy) in advance in the Savings Bank Account in the name of KVIC, for release of Margin Money (subsidy). 

Since “Margin Money” (subsidy) is to be provided in the form of subsidy (Grant), it will be credited to the Borrowers loan account after three years from the date of first disbursement to the borrower/institution, by the Bank. 

In case the Bank‟s advance goes “bad” before the three year period, due to reasons, beyond the control of the beneficiary, the Margin Money (subsidy) will be adjusted by the Bank to liquidate the loan liability of the borrower either in part or full. 

Margin Money (subsidy) will be „one time assistance‟, from Government. For any enhancement of credit limit or for expansion/modernization of the project, margin money (subsidy) assistance is not available.

Margin Money (subsidy) assistance is available only for new projects sanctioned specifically under the PMEGP. Existing units are not eligible under the Scheme. Projects financed jointly i.e. financed from two different sources (Banks / Financial institutions), are not eligible for Margin Money (subsidy) assistance.

Negative List of Activities which are not considered under PMEGP.

In order to make the PMEGP scheme more beneficiary friendly, Ministry of MSME, Govt. of India has modified the negative list. The following lists of activities are not permitted under PMEGP scheme: 

(a) Any industry/ business connected with meat (slaughtered) i.e., processing, canning and / or serving items made of it as food, production/ manufacturing or sale of intoxicant items like Beedi/ Pan/Cigar/Cigarette etc., any hotel or dhaba or sales outlet serving liquor preparation/producing tobacco as raw materials, tapping of toddy for sale.

(b) Any industry/ business connected with cultivation of crops/ plantation like Tea, Coffee, Rubber etc., sericulture (cocoon rearing), horticulture, floriculture. Value addition under these will be allowed under PMEGP. 

(c) Any industry/business connected with animal husbandry like Pisciculture, Piggery, Poultry etc.

(d) Manufacturing of Polythene carry bags of less than 20 microns thickness and manufacture of carry bags or containers made of recycled plastic for storing, carrying, dispensing of packaging of food stuffs and any other item which causes environmental problems. Industries such as processing of pashmina wool and other products like hand spinning and hand weaving have been removed from the negative list i.e., Khadi units are permitted under PMEGP. 

In addition to khadi units, handlooms and power looms unit are eligible for funding under PMEGP. However, the subsidy/benefits for setting up such units can be claimed from one scheme of Government of India only. The guidelines on inclusion of business/ trading activities under PMEGP for availing assistance are reproduced hereunder: 

(a) Business/ Trading activities in the form of sales outlets may be permitted in Northeastern Region (NER), LWE-affected districts and Andaman & Nicobar islands. For left-wing extremism (LWE) –affected districts, the extant classification by Ministry of Home Affairs (MHA), Government of India is adopted.

(b) Retail outlets backed by manufacturing (including processing) / service facilities is permitted across the country. 

(c) The maximum cost of the project for business/ trading activities as above {(a) & (b)} may be Rs.10 lakh (at par with the maximum project cost for service sector). 

(d) Maximum 10% of the Margin Money allocation in a year in as state may be used for business / trading activities as above {(a), (b) & (c)}. 

(e) The products sold from these sales outlets/ retail centres should not fall in the negative list of PMEGP.

(f) Only new units/ projects of retail outlets backed by manufacturing/ service facility may be sanctioned under PMEGP. 

(g) This will be a single composite project. For manufacturing with retail outlet, the project cost should not exceed Rs.25 lakh. For service projects with sales outlets, the maximum project cost should not exceed Rs.10 lakh. 

The following list of activities will not be permitted under PMEGP for setting up of micro enterprises/ projects /units.

1) Rural Transport (Except Auto Rickshaw in Andaman & Nicobar Islands, House Boat, Shikara & Tourist Boats in J&K and Cycle Rickshaw). 

2) Business activities like opening of grocery and stationary shops etc. involving no manufacturing process and value addition. 

3) Farm related activities like Goatery, Piggery, Poultry etc. 

4) All urban/rural Transport activities – i) Except Auto Rickshaw, tourist boat and house boat in A & N Islands ii) Except the House Boat, Shikara and tourist boat in J &K. iii) Except Cycle Rickshaw. Modifications in the negative list under operational guidelines of PMEGP.

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