Government Extends Credit Guarantee Scheme for Microfinance Sector

Launched on March 20, 2026, CGSMFI-2.0 was designed to encourage banks and financial institutions to lend more confidently to NBFC-MFIs and MFIs by providing a government-backed guarantee against potential losses.

The Government of India has extended the validity of 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.

Alongside the extension, the government has significantly increased the maximum loan amount available to large Non-Banking Financial Company-Microfinance Institutions (NBFC-MFIs) and Microfinance Institutions (MFIs) under the scheme. The cap has been raised from ₹300 crore to ₹1,000 crore, while remaining subject to the overall limit of 20 percent of Assets Under Management (AUM).

The move is expected to improve utilization of the scheme and strengthen the flow of credit to the microfinance sector, which plays a critical role in providing financial services to low-income households and small borrowers across the country.

Scheme supports lending to underserved communities

Launched on March 20, 2026, CGSMFI-2.0 was designed to encourage banks and financial institutions to lend more confidently to NBFC-MFIs and MFIs by providing a government-backed guarantee against potential losses. The guarantee is administered through the National Credit Guarantee Trustee Company Limited (NCGTC), which offers protection to lenders against expected defaults on loans extended to microfinance institutions for onward lending to eligible borrowers.

The scheme targets existing and new borrowers who fall within the Reserve Bank of India's definition of microfinance customers. By reducing lending risks for financial institutions, the initiative aims to improve access to affordable credit for small entrepreneurs, self-employed individuals, and economically vulnerable households. According to official data, loans worth ₹770 crore have already been sanctioned under the scheme since its launch.

Higher guarantee coverage and interest safeguards

The scheme provides varying levels of guarantee protection depending on the size of the borrowing institution. Banks and financial institutions receive guarantee coverage of up to 80 percent of defaulted amounts for small NBFC-MFIs and MFIs, 75 percent for medium-sized entities, and 70 percent for large institutions. A guarantee fee of 0.50 percent per annum is charged on the sanctioned amount during the first year and on the outstanding amount in subsequent years.

To ensure affordability, the interest rate on loans provided by member lending institutions to NBFC-MFIs and MFIs is capped at the External Benchmark Lending Rate (EBLR) or Marginal Cost of Funds-based Lending Rate (MCLR) plus 2 percent per annum. The scheme also includes safeguards for end borrowers. Microfinance institutions receiving support under the program are required to lend to small borrowers at interest rates at least 1 percent lower than their average lending rate during the previous six months.

Officials believe the latest revisions will strengthen financial inclusion efforts, improve liquidity within the microfinance ecosystem, and support credit access for millions of small borrowers who depend on microfinance institutions for business and household financing.