The Centre on Friday launched a ₹20,000 crore credit guarantee scheme to revive bank lending to microfinance institutions (MFIs), as the sector grapples with persistent liquidity constraints despite improving asset quality.
According to a paper issued by National Credit Guarantee Trustee Company (NCGTC), the Credit Guarantee Scheme for Microfinance Institutions–2.0 (CGSMFI-2.0) will be effective from 20 March 2026 and will cover loans sanctioned by member lending institutions (MLIs) to MFIs until 30 June 2026.
It will provide guarantee cover for loans extended by these lenders to MFIs for on-lending to small borrowers, in line with Reserve Bank of India norms.
The scheme builds on an earlier credit guarantee programme introduced in June 2021 to support microfinance lending during the covid-19 pandemic.
“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,” said Alok Misra, chief executive of the Microfinance Industry Network (MFIN).
Misra further added that 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.
Jiji Mammen, executive director and CEO of Sa-Dhan, an association of MFIs, said the move would help restore lender confidence in MFIs, which have faced stress in recent years due to recovery challenges followed by liquidity pressures.
“We are sure this step will increase credit to underserved communities and support the continued growth and resilience of the microfinance ecosystem and financial inclusion,” Mammen said.
Details of the scheme
The NCGTC paper further said that member lending institutions will provide funds to MFIs or NBFC-MFIs for lending to small borrowers, based on their assessment. Lending rates will be capped at the external benchmark lending rate or one-year MCLR plus 2% per annum, and MFIs must pass on the benefit by charging borrowers at least 1 percentage point below their recent average rates.
The funds may be disbursed in one go or in tranches, but must be fully released within three months of sanction. Loans will have a maximum tenure of three years, including a one-year moratorium followed by two years of repayment. MLIs must also allocate at least 5% of their total loan amount under the scheme to small MFIs or NBFC/MFIs and 10% to medium-sized ones.
Loans sanctioned by MLIs to MFIs will be capped at 20% of the MFIs' assets under management, with limits of ₹100 crore for small, ₹200 crore for medium-sized, and ₹300 crore for large microfinance institutions. Upon sanction, MLIs will receive guarantee cover from the NCGTC through an automatic approval process.
NCGTC will guarantee 70–80% of the default amount — 70% for large NBFC-MFIs/MFIs; 75% for medium NBFC-MFIs/MFIs; and 80% for small NBFC-MFIs/MFIs. The funds provided under the scheme must be utilized strictly for on-lending to eligible small borrowers.