Government has introduced Credit Guarantee Scheme for Microfinance Institutions-2.0 (CGSMFI-2.0). The scheme aims to provide guarantee cover to Banks/Financial Institutions (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.
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.
Features of CGSMFI-2.0 Scheme
| Objective | It aims to encourage lending institutions to fund NBFC-MFIs and MFIs and enable on lending to small borrowers as per RBI guidelines |
| Eligible Borrowers | Small borrowers as per RBI’s microfinance definition. Includes both: |
| Existing borrowers | |
| New borrowers | |
| Operation | It operates through National Credit Guarantee Trustee Company Limited (NCGTC), which provides guarantee cover against expected losses. |
| Guarantee Coverage (Graded) | 80% of amount for Small MFIs; |
| 75% for Medium MFIs; | |
| 70% for Large MFIs | |
| Guarantee Fee | 0.50% per annum |
| On sanctioned amount (1st year) | |
| On outstanding amount (subsequent years) | |
| Interest Rate Norms | Lending by banks/FIs to MFIs: Capped at EBLR/MCLR + 2% |
| On-lending to borrowers: Must be 1% lower than average lending rate of last 6 months | |
| Scheme Validity Period | Till 30 June 2026 or until guarantees reach ₹20,000 crore (whichever is earlier) |
| Impact | It will facilitate increased credit flow to the MFI sector. |
| It will facilitate on-lending by NBFC-MFIs/MFIs to approximately 36 lakh small borrowers. |