Govt extends microfinance credit guarantee scheme till Aug 31, raises loan cap for large MFIs to ₹1,000 crore

The government has extended the validity of the Credit Guarantee Scheme for Microfinance Institutions-2.0 (CGSMFI-2.0) till August 31, 2026, or until guarantees worth ₹20,000 crore are issued.

The Ministry of Finance on Wednesday said it has also raised the maximum loan amount that can be sanctioned to large-sized 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 their assets under management (AUM).

“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,” the ministry said in a statement.

The CGSMFI-2.0 scheme was launched on March 20, 2026, to provide credit guarantee cover to banks and financial institutions through the National Credit Guarantee Trustee Company Limited (NCGTC) against expected losses on loans extended to NBFC-MFIs and MFIs for onward lending to small borrowers.

According to the ministry, loans amounting to ₹770 crore have been sanctioned under the scheme so far.

The government said the scheme is designed to strengthen lending to microfinance institutions and support increased credit flow of up to ₹20,000 crore to the sector.

Under the scheme, eligible beneficiaries include existing as well as new small borrowers falling within the regulatory definition of microfinance prescribed by the Reserve Bank of India from time to time.

The guarantee coverage is pegged at 80% of the amount in default for small MFIs, 75% for medium-sized entities and 70% for large NBFC-MFIs and MFIs.

A guarantee fee of 0.50% per annum is charged on the sanctioned amount in the first year and on the outstanding amount thereafter.

The interest rate on loans extended 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 percentage points annually.

For loans disbursed by MFIs and NBFC-MFIs to small borrowers, the lending rate must remain at least one percentage point below the average rate charged by the institutions during the preceding six months, the ministry said.