CGSMFI-2.0 for Microfinance Lending

The Government of India has introduced the Credit Guarantee Scheme for Microfinance Institutions-2.0 (CGSMFI-2.0) to improve credit flow to the microfinance sector. The scheme provides guarantee cover to banks and financial institutions through the National Credit Guarantee Trustee Company Limited (NCGTC) against expected losses on loans extended to NBFC-MFIs and MFIs for onward lending to small borrowers. It is designed to support financial inclusion and ease funding stress in the sector.

Scheme Objective

CGSMFI-2.0 aims to encourage lending institutions to extend funds to microfinance intermediaries. These funds are meant for on-lending to borrowers within the Reserve Bank of India’s regulatory definition of microfinance. The scheme is expected to strengthen access to credit for low-income households and small borrowers.

Key Features

• Eligible borrowers include existing or new small borrowers under RBI’s microfinance norms.
• Guarantee coverage is 80% for small NBFC-MFIs and MFIs, 75% for medium entities, and 70% for large entities.
• The guarantee fee is 0.50% per annum on the sanctioned amount in the first year and on the outstanding amount thereafter.
• Interest on loans by member lending institutions to NBFC-MFIs or MFIs is capped at EBLR or MCLR plus 2% per annum.
• While on-lending to small borrowers, interest rates must be capped at 1% below the average lending rate of the previous six months.

Validity and Coverage

The scheme will remain valid till 30 June 2026 or until loans worth Rs. 20,000 crore are guaranteed, whichever is earlier. It is expected to facilitate on-lending by NBFC-MFIs and MFIs to around 36 lakh small borrowers. This makes it support measure for the microfinance ecosystem.

Significance for Financial Inclusion

Microfinance is a major instrument of financial inclusion in India. It helps provide credit to people at the bottom of the economic pyramid. The scheme comes at a time when the sector is facing financial stress and banks have slowed lending to MFIs. By reducing risk for lenders, CGSMFI-2.0 may improve liquidity and expand access to small-ticket credit.