Centre Extends Credit Guarantee Scheme for Microfinance Institutions Till August 2026

New Delhi: In a move aimed at strengthening credit flow to the microfinance sector, the Central Government has extended the Credit Guarantee Scheme for Microfinance Institutions-2.0 (CGSMFI-2.0) until August 31, 2026, or until guarantees worth ?20,000 crore are issued, whichever comes first.

The government has also relaxed lending limits under the scheme by raising the maximum loan cap for large Non-Banking Financial Company-Microfinance Institutions (NBFC-MFIs) and Microfinance Institutions (MFIs) from ?300 crore to ?1,000 crore, while retaining the overall ceiling of 20 per cent of Assets Under Management (AUM), according to the Finance Ministry.

The decision is expected to improve utilisation of the scheme and enable greater access to funds for microfinance institutions, which play a crucial role in providing credit to low-income households and small borrowers.

Launched on March 20, 2026, CGSMFI-2.0 provides credit guarantees to banks and financial institutions through the National Credit Guarantee Trustee Company Limited against potential losses on loans extended to NBFC-MFIs and MFIs. These institutions, in turn, lend to small borrowers across the country.

According to the ministry, loans worth ?770 crore have already been sanctioned under the scheme.

The programme covers both existing and new borrowers who fall within the Reserve Bank of India's definition of microfinance customers.

Under the guarantee framework, the government covers up to 80 per cent of defaulted loan amounts for small MFIs and NBFC-MFIs, 75 per cent for medium-sized institutions and 70 per cent for large institutions.

The guarantee fee has been fixed at 0.50 per cent per annum on the sanctioned amount during the first year and on the outstanding amount thereafter.

To ensure affordable lending, interest rates on loans extended by member lending institutions to MFIs and NBFC-MFIs have been capped at the External Benchmark Lending Rate (EBLR) or Marginal Cost of Funds-based Lending Rate (MCLR) plus 2 per cent annually.

Additionally, microfinance institutions availing benefits under the scheme must lend to small borrowers at an interest rate at least 1 percentage point lower than their average lending rate during the previous six months.

The Finance Ministry said the extension and revised loan limits are expected to support the growth of the microfinance ecosystem and improve access to formal credit for underserved sections of society.

With inputs from IANS