Government Extends MFI Credit Guarantee Scheme, Raises Loan Cap to ₹1000 Crore
The government has also significantly increased the maximum loan limit for large non-banking financial company-microfinance institutions (NBFC-MFIs) and MFIs under the scheme from ₹300 crore to ₹1,000 crore, subject to
The Ministry of Finance said the twin measures are expected to improve utilisation of the scheme and facilitate greater lending to microfinance institutions, thereby expanding access to credit for small borrowers across the country.
New Delhi: The Union government on Wednesday extended the validity of the Credit Guarantee Scheme for Microfinance Institutions-2.0 (CGSMFI-2.0) until August 31, 2026, or until guarantees covering ₹20,000 crore are issued, whichever is earlier, in a move aimed at strengthening credit flow to the microfinance sector.
The government has also significantly increased the maximum loan limit for large non-banking financial company-microfinance institutions (NBFC-MFIs) and MFIs under the scheme from ₹300 crore to ₹1,000 crore, subject to an overall ceiling of 20% of assets under management (AUM).
The Ministry of Finance said the twin measures are expected to improve utilisation of the scheme and facilitate greater lending to microfinance institutions, thereby expanding access to credit for small borrowers across the country.
Launched on March 20, 2026, the CGSMFI-2.0 scheme provides guarantee cover through the National Credit Guarantee Trustee Company Limited (NCGTC) to banks and financial institutions against expected losses on loans extended to NBFC-MFIs and MFIs for onward lending to small borrowers.
According to the government, loans worth ₹770 crore have already been sanctioned under the scheme.
The initiative was introduced to support the microfinance sector by encouraging banks and financial institutions to increase lending to MFIs while reducing credit risk through government-backed guarantees.
Under the scheme, eligible beneficiaries include existing and new small borrowers covered under the Reserve Bank of India’s regulatory definition of microfinance.
The guarantee coverage extends to 80% of the amount in default for small MFIs, 75% for medium-sized institutions and 70% for large MFIs and NBFC-MFIs.
The guarantee fee has been fixed at 0.50% per annum on the sanctioned amount during the first year and on the outstanding amount thereafter.
To ensure affordable credit, interest rates on loans extended by member lending institutions to MFIs are capped at the external benchmark lending rate (EBLR) or marginal cost of funds-based lending rate (MCLR) plus two percentage points. In turn, MFIs are required to lend to small borrowers at rates at least one percentage point below their average lending rate over the preceding six months.
The extension comes as the government seeks to strengthen financial inclusion efforts by improving credit availability to underserved segments through the microfinance ecosystem while supporting the growth and stability of lending institutions serving low-income borrowers.
