Microfinance Sector Rallies as Government Extends Key Guarantee Scheme and Raises Loan Limits to ₹1000 Crores

Microfinance Sector Rallies as Government Extends Key Guarantee Scheme and Raises Loan Limits to ₹1000 Crores​

Government Extends CGSMFI-2.0 Validity and Boosts NBFC Lending Capacity​

The Government of India has approved a significant extension for the Credit Guarantee Scheme for Microfinance Institutions-2.0 (CGSMFI-2.0). The scheme's validity is extended until August 31, 2026, or when guarantees totaling ₹20,000 crore are issued, whichever event occurs earlier.

This move aims to significantly strengthen the microfinance sector by providing sustained credit guarantee support. The scheme involves the National Credit Guarantee Trustee Company Limited (NCGTC) and is designed to facilitate increased lending flow into MFIs and Non-Banking Financial Companies-Microfinance Institutions (NBFC-MFIs).

Major Increase in Loan Limits Under CGSMFI-2.0​

A key enhancement approved under this extension is the increase in the maximum loan amount for Large Sized NBFC-MFIs/MFIs. Previously capped at ₹300 crores, the limit has been substantially increased to ₹1000 crores. This increase remains subject to the overall ceiling of 20% of Assets under Management (AUM).

The extension and the elevated loan limits are expected to improve the utilization rate of the scheme. Experts anticipate that this decision will facilitate a marked increase in credit flow channeled towards the MFI sector nationwide.

How CGSMFI-2.0 Strengthens Microfinance Institutions​

Introduced by the Central Government on March 20, 2026, CGSMFI-2.0 provides crucial guarantee cover against expected losses. This financial assistance is extended to NBFC-MFIs and MFIs which lend to small borrowers. As of date, loans totaling ₹770 crore have been sanctioned under the scheme so far.

The salient features of the scheme are designed to protect lenders while enabling microfinance expansion. Eligible borrowers include existing or new small borrowers who meet the regulatory definition prescribed by RBI.

Guarantee Coverage and Interest Rate Structure​

The guarantee structure varies based on the borrower size and lending institution type. For small borrowers, the scheme offers an 80% guarantee coverage against default. This coverage stands at 75% for medium borrowers and 70% for large NBFC-MFIs/MFIs.

In terms of cost, the Guarantee Fee is set at 0.50% p.a. on the sanctioned amount during the first year and subsequently on the outstanding amount. Interest rates for loans extended by MLIs to NBFC-MFIs or MFIs are capped at EBLR or MCLR + 2% p.a.

For the lending of small borrowers, these MFIs/NBFC-MFIs must cap the interest rate at 1% below the average rate of lending recorded over the preceding six months.