PRIME MINISTER’S EMPLOYMENT GENERATION PROGRAMME (PMEGP)

Introduction:

Launched on 15th August, 2008, PMEGP is a credit linked Subsidy Programme administered by the Ministry of Micro, Small & Medium Enterprises, and Government of India. Khadi & Village Industries Commission (KVIC) is the nodal agency at the national level for implementation of the Scheme. At state level the scheme is implemented through KVIC, KVIB and District Industries Center.

Objectives:

  • To generate employment opportunities in rural as well as urban areas through setting up of self-employment ventures,
  • To provide continuance & sustainable employment to a large segment of traditional and prospective artisans and unemployed youth, so as to help arrest migration of rural youth to urban areas.

Beneficiaries: Individual entrepreneurs, Institutions registered under Societies Registration Act, 1860, Production Cooperative Societies, SHGs, Charitable Trusts

Eligibility Conditions of Beneficiaries:

  • Any adult individual beneficiary above 18 years of age
  • There will be no income ceiling for assistance under PMEGP
  • For setting up of project costing above ` 10 lakh in manufacturing sector and above ` 5 lakh in the business/service sector, the beneficiaries should possess at least VIII Standard pass education qualification.
  • Assistance under the scheme is available only for new projects sanctioned specifically under the PMEGP.

Non Eligibility:

  • Existing unit cannot avail funds under PMEGP
  • Existing units that have already availed Govt. Subsidy under any other scheme of Govt. of India or State Govt. are not eligible.
  • Activities on Negative list not eligible to fiancé under the scheme.

Eligible Project:

All viable village industry projects set up in rural areas (population criteria up to 20000 or area declared as village by State Govt.) which produces any goods or renders any service with or without the use of power and in which the fixed capital investment per head of a full time artisan or worker does not exceed ` 1.00 lakh in plain area and ` 1.50 lakh in hilly area.

One Project One Family:

To provide benefit for large number of beneficiaries, under PMEGP one unit could be set up by one family. Under PMEGP family includes ‘self and spouse’.

Selection of Beneficiaries: The beneficiaries will be identified and selected at the District level by a Task Force consisting of representatives from KVIC/State KVIB/State DICs and Bankers and headed by the District Magistrate/Deputy Commissioner/Collector concerned.

Maximum Project Cost Allowed under PMEGP

Rs. 25.00 lakh for Manufacturing unit
Rs. 10.00 lakh for Service unit

Component of Project Cost

Capital Expenditure (Fixed Capital investment)
Working Capital for one cycle

Limit of Fixed Capital Investment for a Full-time Worker

Rs. 1.00 lakh in plain area
Rs. 1.50 lakh in hilly area

Margin, Subsidy Entitlement and Bank Finance under PMEGP

Categories of Beneficiaries

Beneficiary’s Contribution

(of Project Cost)

Bank Finance

(of Project cost)

Rate of Subsidy

(of Project cost)

      Urban Area Rural Area

General Category

10%

90%

15%

25%

Special Category (ST/SC/ Weaker section etc.)

05%

95%

25%

35%

 

EDP Training: Normally, before release of first installment of bank loan EDP training of 2-3 weeks training to the beneficiary is compulsory.

Type of Loan: (a) Term Loan and (b) Working Capital/Cash Credit Limit

Utilisation of Cash Credit Limit: Working Capital at least once should touch 100% of limit sanctioned within 3 years of Lock-in-period of margin money and not less than 75% of the utilization of the sanction limit on an average. If the working capital availment does not touch 100% of the sanctioned cash credit limit at least once, or if the average working capital availment is below 75%, proportionate amount of margin money should be recovered by the Bank and refunded to KVIC at the end of three years from the date of disbursement of the loan or date of lock-in-period whatever is earlier.

Computation of Average Working Capital Availment: The average working capital availment should be calculated on the basis of daily average of the actually availed cash credit limit. The average working capital availment should be calculated over a period beginning with first drawal of cash credit and ending on the completion of the three year period from the date of first disbursement of the loan (that is, Term Loan) or date of ending of lock-in-period, whichever is earlier.

Disbursement of loan: First disbursement of loan should be towards term loan component. The first instalment released by the bank should be at least equal to or more than the margin money subsidy amount. Afterwards, disbursement will be made for working capital loan.

Bank have to take into consideration the total margin money subsidy and reduce this subsidy component from the Term Loan for the purpose netting the loan amount and charging the interest to the borrower on the term loan. 

Subsidy (Margin Money): Margin Money (Govt. Subsidy) is available as Back-ended subsidy with 3 years Lock-in-period. Subsidy received by bank is to be kept as FDR and can be adjusted to loan at the end of lock-in-period from the date of first disbursement of the loan.

Repayment Schedule

  • Depending upon the cash flow, the term loan should be repaid in EMIs within a maximum period of 5 years including a maximum grace period of 6 months. Repayment schedule will be drawn on the loan amount in such a way that total subsidy amount is adjusted after full bank loan component net of subsidy is liquidated 
  • The cash credit shall be repayable on demand and valid for 5 years.

No Interest Chargeable on Subsidy Portion: No interest would be charged on subsidy portion and in view of this, for the purpose of charging interest on the loan component, the subsidy amount would be excluded.

Rate of Interest: Interest will be charged at prevailing rate on daily reducing balance at monthly rests.

Security

Primary Security: Hypothecation of assets created out of bank loan

Collateral Security: As per RBI guidelines the project costing up to Rs. 5.00 lakh under PMEGP loans are free from collateral security. For loans above Rs. 5.00 lakh, in addition to Hypothecation of assets, other collateral security in the form of lien on deposits, mortgage of land & building, third party guarantee shall be obtained. 

Processing fees: Processing fees will be levied as per prevailing rate at the time of sanction.

Pre-Payment Charges: No pre-payment or pre-closure penalty will be levied for pre-payment of loan any time during the repayment period

Insurance: The assets created out of bank loan  to be kept comprehensively insured for the market value or at least 10% above the loan amount outstanding, whichever is higher, and Bank’s interest at a hypothecate should be noted in the Certificate of Insurance and Insurance Policy. Cost of the insurance should be borne by the borrower.