The government has introduced the Credit Guarantee Scheme for Microfinance Institutions 2.0 (CGSMFI-2.0), a targeted initiative designed to strengthen the microfinance ecosystem and support small borrowers. Effective March 20, 2026, the scheme will remain in force until June 30, 2026, or until guarantees worth Rs 20,000 crore are issued.
Under this framework, scheduled commercial banks and all-India financial institutions will provide fundings to NBFC-MFIs and MFIs, which, in turn, will on-lend to small borrowers defined within Reserve Bank of India’s microfinance regulations.
To ensure affordability, interest rates are capped. Member lending institutions (MLIs) can charge NBFC-MFIs/MFIs at external benchmark lending rates or one-year marginal cost of funds based lending rate + 2%, while MFIs must lend to borrowers at least 1% below their average lending rate for the past six months.
Alok Misra, chief executive and director, MFIN, said: “We welcome the launch of CGSMFI 2.0, which is timely to address the current challenges faced by the microfinance sector. The sector has demonstrated strong improvement in credit quality and adherence to responsible lending practices.
“The key constraint has been the availability of bank funding. This scheme will play a critical role in unlocking liquidity, particularly for small and medium MFIs, and ensuring that affordable credit continues to reach low-income households.”
The scheme mandates that loans be disbursed within three months of sanction, with a maximum tenure of three years (one-year moratorium plus two years of repayment). MLIs must allocate at least 5% of loans to small MFIs and 10% to medium MFIs, with loan limits tied to the institution’s assets under management — capped at Rs 100 crore for small, Rs 200 crore for medium, and `300 crore for large MFIs.
To safeguard lenders, the National Credit Guarantee Trustee Company will provide a guarantee coverage of 80% for small MFIs, 75% for medium, and 70% for large entities, based on the amount in default.
The scheme also emphasises strict monitoring and compliance. MLIs must ensure funds are used exclusively for fresh loan creation, maintain separate accounts, obtain statutory auditor certificates, and submit quarterly credit bureau reports.
Claims on defaults can be made annually, subject to a one-year lock-in period, with MLIs paying a guarantee fee of 0.5%. Even after guarantee claims are settled, MLIs remain responsible for recovery efforts, ensuring accountability and discipline in lending practices.
In essence, CGSMFI-2.0 is a carefully structured intervention, aimed at balancing financial inclusion with risk management. By supporting MFIs with partial guarantees and enforcing transparent lending practices, the government seeks to empower millions of small borrowers while stabilising the microfinance sector.