Executive Summary
- AGF is an ongoing annual cost, not a one-time fee paid at sanction
- Rates range from 0.37% to 0.55% p.a. depending on borrower category, FY 2025–26
- AGF is calculated on the outstanding sanctioned amount, not the original loan amount
- Missing a payment causes the guarantee to lapse silently — the loan continues, the cover does not
What AGF Is and Why It Exists
The Annual Guarantee Fee is the price the bank pays CGTMSE for guarantee cover, which the bank in turn passes on to the borrower. It exists because the Trust's guarantee fund needs ongoing premium income to remain solvent and continue covering defaults across its entire portfolio of guaranteed loans — the same underlying logic as any insurance mechanism.
Current AGF Rates by Category
AGF Rates by Borrower Category (FY 2025–26)
| Category | Coverage % | AGF Rate (approx.) |
|---|---|---|
| Micro Enterprises (general) | 85% | 0.37% p.a. |
| Small Enterprises (general) | 75% | 0.55% p.a. |
| Women Entrepreneurs | 85% | 0.37% p.a. |
| SC/ST Promoters | 85% | 0.37% p.a. |
| ZED Certified MSMEs | 85% | 0.37% p.a. |
Rates are approximate and subject to revision by CGTMSE. Always confirm current AGF with your lending bank.
How AGF Is Calculated
AGF is calculated annually on the outstanding guaranteed amount — not the original sanctioned amount — meaning the fee reduces each year as you repay principal on a term loan. For working capital limits, AGF is typically calculated on the sanctioned limit rather than the drawn balance, since the limit itself represents the bank's ongoing exposure regardless of utilisation on any given day.
What Happens If You Miss an AGF Payment
CGTMSE allows a grace period for AGF payment, but once that window passes without payment, the guarantee on that specific loan lapses. The bank can typically request reinstatement, but this is not automatic and may involve additional scrutiny or a fresh fee. From the borrower's perspective, the practical risk is limited unless a default situation occurs — at which point a lapsed guarantee means the bank bears full recovery risk rather than 75–85% being covered, which can affect how the bank handles a stressed account.
How to Stay on Top of AGF Payments
The simplest safeguard is calendaring the AGF due date the moment your loan is sanctioned — typically tied to the sanction anniversary — rather than waiting for the bank to prompt payment. For businesses managing multiple credit facilities across Bengaluru or other Karnataka operations, a single missed reminder among several facilities is a common, avoidable failure mode. See our guide on what happens after sanction for the broader set of post-disbursement obligations AGF sits within.
Frequently Asked Questions
What is the CGTMSE Annual Guarantee Fee rate for MSME loans in Karnataka?
The CGTMSE Annual Guarantee Fee (AGF) varies by loan category and borrower type. For Micro enterprises, the AGF rate is lower than for Small enterprises. Women-promoted and SC/ST-promoted businesses in certain loan categories qualify for reduced AGF rates. The fee applies annually on the outstanding guaranteed balance and is typically charged to the borrower by the lending bank as part of total facility cost. Confirm current rates directly with the lending bank or the CGTMSE website for the applicable loan amount and category.
Is CGTMSE Annual Guarantee Fee included in the interest rate quoted by the bank?
Typically no. Banks quote their interest rate on MSME credit separately from the CGTMSE AGF. The total effective cost of a CGTMSE-backed loan is the interest rate plus the AGF — borrowers who compare only the interest rate quoted by the bank without adding the AGF are underestimating their actual annual credit cost. Always request a total all-in cost figure from the bank before committing to a CGTMSE facility.
Does the CGTMSE Annual Guarantee Fee reduce as the loan is repaid?
Yes. The AGF is calculated on the outstanding guaranteed balance at the beginning of each year — as the loan is repaid and the outstanding balance reduces, the annual AGF amount also reduces proportionally. This means the effective additional cost of the CGTMSE fee diminishes over the loan tenure, with the highest AGF cost in Year 1 and the lowest in the final year of repayment.