The central government has launched the Credit Guarantee Scheme for Micro Finance Institutions (CGSMFI-2.0).
The main aim of this scheme is to support banks and financial institutions by giving them a guarantee against possible losses.
This guarantee is provided through the National Credit Guarantee Trustee Company Limited (NCGTC).
It covers loans given by Non-Banking Finance Company–Micro Finance Institutions (NBFC-MFIs) and Small Finance Institutions to small borrowers.
Microfinance institutions (MFIs), which provide loans to people with low income, are currently facing problems due to rising non-performing assets (NPAs).
Because of this, banks and lenders have become cautious about giving them more loans.
To help these institutions, the government has approved a limited-time credit guarantee scheme of ₹20,000 crore. MFIs had been facing difficulties in raising funds, and this scheme aims to solve that issue.
Key Features of the Scheme
Eligible Borrowers
The scheme covers existing and new small borrowers who fall under the microfinance definition set by the Reserve Bank of India (RBI).
Guaranteed Coverage
80% guarantee for small NBFC-MFIs/MFIs
75% guarantee for medium NBFC-MFIs/MFIs
70% guarantee for large NBFC-MFIs/MFIs
Guarantee Fee
0.50% per year on the sanctioned amount in the first year
After that, it is charged on the outstanding loan amount
Interest Rate Rules
Loans given by banks to MFIs are limited to EBLR or MCLR + 2% per year
When MFIs lend to small borrowers, the interest rate must be at least 1% lower than the average rate of the last 6 months
Scheme Duration
The scheme will remain active until 30 June 2026 or until guarantees worth ₹20,000 crore are issued, whichever comes first.
Impact of the Scheme
This scheme is expected to increase the flow of credit to the microfinance sector. It is estimated that around 3.6 million small borrowers will benefit from it.
Microfinance plays an important role in financial inclusion by providing loans to people at the lower end of the economic ladder. NBFC-MFIs and MFIs are key players in this sector.
Due to the current financial stress in the microfinance sector, banks have reduced lending to these institutions. As a result, smaller MFIs are finding it difficult to get loans.
This scheme aims to encourage banks and financial institutions to lend more to NBFC-MFIs and MFIs so that they can continue providing loans to small borrowers as per RBI guidelines.
