Government Extends Validity of Credit Guarantee Scheme for Microfinance Institutions-2.0 (CGSMFI-2.0), Increases Loan Limits under the scheme

**Executive Summary** The Ministry of Finance has extended the validity of the Credit Guarantee Scheme for Microfinance Institutions-2.0 (CGSMFI-2.0) until August 31, 2026, or until guarantees totaling ₹20,000 crore are issued. A key modification includes increasing the maximum loan limit for large-sized NBFC-MFIs from ₹300 crore to ₹1,000 crore to facilitate better credit flow to the microfinance sector. The scheme continues to provide NCGTC-backed guarantee covers to Banks and Financial Institutions to support on-lending to small borrowers. **Key Points / Main Content** * **Extension and Capacity** * The scheme's validity is extended to 31.08.2026 or the issuance of ₹20,000 crore in guarantees, whichever is earlier. * Total loans sanctioned under the scheme currently stand at ₹770 crore. * The maximum loan cap for large-sized NBFC-MFIs/MFIs has been raised from ₹300 crore to ₹1,000 crore, subject to a ceiling of 20% of their Assets under Management (AUM). * **Guarantee Framework** * Guarantee cover is provided by the National Credit Guarantee Trustee Company Limited (NCGTC) to Banks and Financial Institutions. * Coverage for defaults is tiered based on institution size: 80% for small, 75% for medium, and 70% for large NBFC-MFIs/MFIs. * A guarantee fee of 0.50% per annum is charged on the sanctioned amount in the first year and the outstanding amount thereafter. * **Lending Terms and Eligibility** * Eligible borrowers include new or existing small borrowers as per the RBI’s regulatory definition of microfinance. * Interest rates for loans from Member Lending Institutions (MLIs) to MFIs are capped at EBLR or MCLR + 2% per annum. * MFIs must cap their on-lending interest rates to small borrowers at 1% below their average lending rate from the preceding six months. **Impact Analysis** **Large-Sized NBFC-MFIs/MFIs** **Impact:** They gain access to significantly higher credit limits (up to ₹1,000 crore), enabling better liquidity and utilization of the scheme. **Action Required:** Monitor Assets under Management (AUM) to ensure total borrowing remains within the 20% ceiling and adjust on-lending rates to meet the mandatory 1% reduction requirement. **Banks and Financial Institutions (MLIs)** **Impact:** Financial risk is mitigated by NCGTC guarantee covers ranging from 70% to 80% on loans extended to the microfinance sector. **Action Required:** Adhere to the interest rate caps (EBLR/MCLR + 2%) when extending financial assistance to MFIs and coordinate with NCGTC for guarantee issuance. **Small Borrowers** **Impact:** Increased availability of microcredit and potentially lower borrowing costs due to the interest rate caps imposed on MFIs. **Action Required:** No direct action required; borrowers benefit from the increased credit flow facilitated by the scheme extension. **National Credit Guarantee Trustee Company Limited (NCGTC)** **Impact:** Continued responsibility for administering guarantee covers and managing the expanded ₹20,000 crore limit. **Action Required:** Facilitate the processing of guarantees and collection of guarantee fees until the revised deadline of August 2026.

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