Credit Guarantee Scheme for Microfinance Institutions-2.0

Context: The Government of India has launched the Credit Guarantee Scheme for Microfinance Institutions-2.0 (CGSMFI-2.0) to inject ₹20,000 crore into the microfinance sector.

Credit Guarantee Scheme for Microfinance Institutions-2.0: Background

• A specialised credit guarantee framework where the government provides a guarantee to Member Lending Institutions (MLIs) against potential defaults on loans extended to NBFC-MFIs and other MFIs. This scheme acts as a financial cushion for banks, encouraging them to lend to microfinance bodies that might otherwise be considered high-risk during periods of financial stress.
• Launched In: March 2026
• Organizations Involved:
  • Department of Financial Services (DFS): The nodal government department.
  • NCGTC (National Credit Guarantee Trustee Company Limited): The agency responsible for managing and providing the guarantee cover.
• Aim: To strengthen the liquidity of MFIs and ensure an uninterrupted flow of credit to small borrowers, thereby bolstering financial inclusion and rural economic stability.

Key Features of the CGSMFI-2.0 Scheme

• Tiered Guarantee Coverage: Provides a safety net covering 80% of the defaulted amount for small MFIs, 75% for medium, and 70% for large MFIs, prioritising smaller players.
• Interest Rate Caps: Loans from banks to MFIs are capped at EBLR/MCLR + 2%; when MFIs lend to the public, they must cap rates at 1% below their average lending rate of the past six months.
• Low Guarantee Fee: A nominal fee of 0.50% p.a. is charged to the lending institutions, making the risk mitigation affordable.
• Defined Timeline and Scale: The scheme is valid until June 30, 2026, or until a total guarantee limit of ₹20,000 crore is reached.
• Targeted Beneficiaries: Focuses exclusively on small borrowers as defined by the RBI, ensuring that the capital reaches those with the least access to formal banking.

Significance of CGSMFI-2.0

• It empowers NBFC-MFIs, which are the primary vehicles for delivering credit to rural and semi-urban areas where traditional bank branches are scarce.
• By targeting 36 lakh borrowers, the scheme supports self-employment, women’s empowerment through Self-Help Groups (SHGs), and poverty alleviation.

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