The Union Cabinet had yesterday i.e. 6th January, 2016 approved creation of a Credit Guarantee Fund (CGF) for Micro Units Development Refinance Agency (MUDRA) loans and for converting MUDRA Ltd. into MUDRA Small Industries Development Bank of India (SIDBI) Bank as a wholly owned subsidiary of SIDBI.

Now the MUDRA (SIDBI) Bank will undertake refinance operations and provide support services with focus on portal management and also data analysis etc. The MUDRA (SIDBI) Bank can take -up any other role as may be assigned to it by Government.

MFIs can now become Member Lending Institutions (MLIs) with MUDRA (SIDBI) Bank for refinance and with NCGTC for credit guarantee. This membership is predicated on the fulfilment of certain criteria such as size, experience, an assessment of internal systems, processes and procedures, CRAR and other norms, capacity assessment rating, etc.

On an ongoing basis, the cost of guarantee is linked to rating and recovery performance, to incentivize all MFIs, who join up as MLIs to continue good performance.

MUDRA loans amounting to ₹ 71,312 crore have been disbursed to 1.73 crore borrowers as on 1st January, 2016.

Credit Guarantee Fund expansion enables refinance through member lending institutions, linking guarantee cost to rating and recovery performance. Creation of a Credit Guarantee Fund for MUDRA loans and conversion of MUDRA Ltd. into a SIDBI subsidiary establishes MUDRA (SIDBI) Bank to undertake refinance operations and support services focused on portal management and data analysis. MFIs may become Member Lending Institutions for refinance and credit guarantee access, subject to eligibility criteria and capacity assessment, with guarantee costs linked to rating and recovery performance.