Govt extends validity of of Credit Guarantee Scheme for Microfinance Institutions-2.0

• The government has approved the extension of the Credit Guarantee Scheme for Microfinance Institutions-2.0 and a hike in the maximum loan limit to Rs 1,000 crore.

• As of date, loans totalling Rs 770 crore have been sanctioned under the scheme.

• The scheme was valid till June 30, 2026 or loans up to Rs 20,000 crore are guaranteed, whichever is earlier.

• The government has approved extension in validity of CGSMFI-2.0 up to August 31, 2026, or till guarantees for an amount of Rs 20,000 crore are issued, whichever is earlier.

• The government has also approved an increase in the maximum loan amount capped to large-sized NBFC-MFIs/MFIs from Rs 300 crore to Rs 1,000 crore under the overall ceiling of 20 per cent of assets under management (AUM).

• The extension in validity and increase in maximum loan amount capped to large-sized NBFC-MFIs/MFIs is expected to result in better utilisation of the scheme and facilitate increased credit flow to the MFI sector.

CGSMFI-2.0 scheme

• CGSMFI was launched in July 2021 to provide guarantee coverage to eligible Member Lending Institutions (MLIs) for the funding provided by them to Non-Banking Financial Company-Micro Finance Institutions (NBFC-MFIs) / MFIs for on-lending to eligible small borrowers in the context of COVID-19 pandemic.

• CGSMFI-2.0 is an extended version of CGSMFI.

• The CGSMFI-2.0 scheme was introduced on March 20, 2026, and aims to provide guarantee cover to banks/ financial institutions through National Credit Guarantee Trustee Company Limited (NCGTC) against expected losses on the financial assistance extended by them to NBFC-MFIs and MFIs for on-lending to small borrowers.

• The guarantee coverage extends to 80 per cent of the amount in default for small NBFC-MFIs and MFIs, 75 per cent for medium NBFC-MFIs and MFIs, and 70 per cent for large NBFC-MFIs and MFIs.

• The guarantee fee under the scheme is 0.50 per cent per annum on the sanctioned amount for the first year and on the outstanding amount thereafter. 

What is the objective of the scheme?

• To provide guarantee coverage to eligible Member Lending Institutions (MLIs) for financial assistance extended by them to NBFC-MFIs/MFIs, for on-lending to existing or new small borrowers, in accordance with the regulatory definition of microfinance as prescribed by RBI from time to time.

Significance of the scheme

• Microfinance plays a key role in financial inclusion by delivering credit to people at the bottom of the economic pyramid. 

• Non-Banking Financial Company-Micro Finance Institutions (NBFC-MFIs) and MFIs are the key participants in the microfinance lending business. 

• In view of ongoing financial stress in the microfinance sector, there has been a slowdown in lending by banks to MFIs due to which smaller MFIs are struggling to get loans. 

• The scheme aims to encourage lending institutions to provide funding to NBFC-MFIs or MFIs for lending to small borrowers within the regulatory definition of micro finance as prescribed by the Reserve Bank of India.

(The author is a trainer for Civil Services aspirants.)