**Executive Summary**
The Government of India has introduced the Credit Guarantee Scheme for Microfinance Institutions-2.0 (CGSMFI-2.0) to facilitate up to ₹20,000 crore in credit flow to the microfinance sector. Administered by the National Credit Guarantee Trustee Company Limited (NCGTC), the scheme provides guarantee cover to Banks and Financial Institutions against losses on loans to NBFC-MFIs and MFIs. The initiative is valid until June 30, 2026, or until the ₹20,000 crore limit is reached, aiming to benefit approximately 36 lakh small borrowers.
**Key Points / Main Content**
**Scheme Objectives and Administration**
* Provides guarantee cover to Banks/FIs through the NCGTC.
* Aims to strengthen lending to MFIs and NBFC-MFIs to encourage on-lending to small borrowers during periods of financial stress.
**Guarantee Coverage and Fees**
* **Tiered Coverage:** Guarantee covers 80% of the default amount for small MFIs, 75% for medium MFIs, and 70% for large MFIs.
* **Fee Structure:** An annual guarantee fee of 0.50% is charged on the sanctioned amount in the first year and on the outstanding amount in subsequent years.
**Interest Rate Regulations**
* **Lending to MFIs:** Interest rates charged by Member Lending Institutions (MLIs) to MFIs are capped at EBLR or MCLR + 2% per annum.
* **On-lending to Borrowers:** MFIs must cap interest rates for small borrowers at 1% below their average lending rate from the previous six months.
**Eligibility and Timeline**
* **Eligible Borrowers:** New or existing small borrowers who meet the RBI’s regulatory definition of microfinance.
* **Validity:** The scheme remains active until June 30, 2026, or until the total guaranteed loans reach ₹20,000 crore, whichever occurs first.
**Impact Analysis**
**Banks / Financial Institutions (MLIs)**
**Impact**
MLIs receive significant risk mitigation through guarantee covers (70%–80%) against expected losses on loans extended to the microfinance sector.
**Action Required**
Provide financial assistance to NBFC-MFIs/MFIs within the mandated interest rate caps and pay the required guarantee fees to NCGTC.
**NBFC-MFIs / MFIs**
**Impact**
The scheme facilitates increased liquidity and credit flow, particularly for smaller MFIs that have struggled to secure bank loans due to sector-wide financial stress.
**Action Required**
Adhere to interest rate caps when on-lending to small borrowers and ensure borrowers meet the RBI’s microfinance definition.
**Small Borrowers**
**Impact**
Approximately 36 lakh borrowers at the "bottom of the economic pyramid" gain improved access to credit with regulated interest rates.
**Action Required**
Borrowers must remain within the regulatory definition of microfinance as prescribed by the RBI to qualify for loans under this scheme.
Key Entities Referenced
Credit Guarantee Scheme for Microfinance Institutions-2.0 (CGSMFI-2.0): The primary policy initiative introduced to provide guarantee cover to Banks and Financial Institutions against losses on loans extended to the microfinance sector.
National Credit Guarantee Trustee Company Limited (NCGTC): The entity through which the government provides credit guarantee support to strengthen lending to MFIs.
Reserve Bank of India (RBI): The regulator responsible for prescribing the definition of microfinance used to determine borrower eligibility under the scheme.
Non-Banking Financial Company-Microfinance Institutions (NBFC-MFIs): The key financial entities targeted by the scheme to receive increased credit flow for on-lending to small borrowers.
Ministry of Finance: The primary central ministry responsible for the introduction and implementation of the credit guarantee initiative.
Ministry of Finance
Government introduces Credit Guarantee
Scheme for Microfinance Institutions-2.0
(CGSMFI-2.0)
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
Posted On: 21 MAR 2026 2:00PM by PIB Delhi
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 bybanks 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.
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