The Government of India has introduced Credit Guarantee Scheme for Microfinance Institutions-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 by banks 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.
Significance of Microfinance in India:
- Financial inclusion and Poverty Alleviation: Fills gap left by traditional banks, bringing low-income groups into formal financial system.
- Supports MSMEs and entrepreneurship: By providing tailored loans without mandatory collateral requirements.
- Women Empowerment: Women borrowers constitute 95% in microfinance sector. (Economic Survey 2025-26)