Scheme aims to provide credit guarantee support through NCGTC to strengthen lending to MFIs, Facilitates increased credit flow of up to ₹20,000 crore to the NBFC- MFIs

Approximately 36 lakh MFI borrowers estimated to benefit from the scheme

The Government of India has introduced Credit Guarantee Scheme for Microfinance Institutions-2.0 (CGSMFI-2.0). The scheme aims to provide guarantee cover to Banks/ FIs through National Credit Guarantee Trustee Company Limited (NCGTC) against expected losses on the financial assistance extended by them to Non-Banking Financial Company-Microfinance Institutions (NBFC-MFIs) and MFIs for on lending to small borrowers.

Salient features of the scheme:

• Eligible borrowers: Existing or new small borrowers within the regulatory definition of micro finance as prescribed by RBI from time to time.
• Guarantee coverage: 80% of amount in default for small, 75% for medium and 70% for large NBFC-MFIs/ MFIs.
• Guarantee Fee: 0.50% p.a., on sanctioned amount (1st year) & outstanding amount (thereafter).
• Interest Rate: Capped at EBLR or MCLR + 2% p.a., on loans by MLIs to NBFC-MFIs or MFIs. While on-lending to small borrowers, these lenders shall cap the interest rate at 1% below the average rate of lending in past 6 months.
• Valid till 30.06.2026 or loans till Rs. 20,000 crores are guaranteed, whichever is earlier.

Impact:

The scheme will facilitate increased credit flow to the MFI sector. It is estimated that the scheme will facilitate on-lending by NBFC-MFIs/ MFIs to approximately 36 lakh small borrowers.

Background:

Microfinance plays a key role in Financial Inclusion by delivering credit to people at the bottom of the economic pyramid. NBFC-MFIs and MFIs are the key participants in the microfinance lending business. In view of ongoing financial stress in the microfinance sector, there has been a slowdown in lending by banks to MFIs due to which smaller MFIs are struggling to get loans. The scheme aims to encourage lending institutions to provide funding to NBFC-MFIs or MFIs for on lending to small borrowers within the regulatory definition of micro finance as prescribed by the Reserve Bank of India.

Credit guarantee support for microfinance lending boosts financing to NBFC-MFIs, with capped rates and differentiated coverage. Credit guarantee support is introduced for lending to NBFC-MFIs and MFIs through the National Credit Guarantee Trustee Company Limited to strengthen financing for on-lending to small borrowers within the Reserve Bank of India's microfinance definition. The scheme extends differentiated guarantee cover of 80% for small, 75% for medium and 70% for large NBFC-MFIs or MFIs, with a guarantee fee of 0.50% per annum and lending caps linked to EBLR or MCLR plus 2% per annum. The scheme remains valid until 30 June 2026 or until loans aggregating to Rs. 20,000 crore are guaranteed.