Collateral

An asset pledged by a borrower to a lender as security against a loan, enabling the lender to seize and liquidate it in case of default. In India, the absence of adequate collateral — particularly for smallholder farmers, microenterprises, and women entrepreneurs — is a key barrier to formal credit access, motivating schemes like the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) and MUDRA, which provide collateral-free loans. Under Basel III norms, the quality and liquidity of collateral affect capital adequacy calculations for Indian scheduled commercial banks.