Government Sanctions Rs 20,000-Crore Boost for Microfinance Institutions

The government has approved a Rs 20,000-crore credit guarantee scheme to support microfinance institutions facing funding challenges. The scheme, known as CGSMFI-2.0, involves loans from member lending institutions to NBFC-MFIs and MFIs, with specific interest rate caps and loan conditions. The initiative aims to unlock liquidity and aid small borrowers.

The government announced on Friday a Rs 20,000-crore credit guarantee scheme aimed at assisting microfinance institutions (MFIs) struggling to secure funds. The scheme, termed CGSMFI-2.0, is designed to cover loans extended by member lending institutions (MLIs), which include banks and other lenders to non-banking finance companies and MFIs, until the end of June.

These measures come in response to MFIs facing adversity due to a surge in non-performing assets, making lenders hesitant to provide further funding. NCGTC emphasized that MLIs will offer financing to MFIs for on-lending to eligible small borrowers, with conditions on interest rates to ensure compliance.

Interest rates on loans sanctioned to MFIs will be capped and lending must be executed at a lower cost. Additionally, stipulations include a maximum loan tenure of three years and specific asset management criteria. The move is seen as a timely intervention to address liquidity challenges in the sector.