Credit guarantee scheme for MFI 2.0 gets extension

The Credit Guarantee Scheme for Microfinance Institutions-2.0 (CGSMFI-2.0) has been extended until August 31, 2026, or until guarantees worth ₹20,000 crore a...

What Happened

The Credit Guarantee Scheme for Microfinance Institutions-2.0 (CGSMFI-2.0) has been extended until August 31, 2026, or until guarantees worth ₹20,000 crore are issued — whichever is earlier.
The maximum loan amount cap for large-sized NBFC-MFIs and MFIs has been raised from ₹300 crore to ₹1,000 crore, subject to an overall ceiling of 20% of their Assets Under Management (AUM).
The scheme, launched on March 20, 2026, aims to provide 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 on-lending to small borrowers.
As of the date of extension, loans totalling ₹770 crore have been sanctioned under the scheme.
The extension aims to boost credit flow to the microfinance sector, which has faced stress from asset quality deterioration in recent quarters.

Static Topic Bridges

Microfinance Institutions (MFIs) and NBFC-MFIs

Microfinance institutions provide collateral-free small loans to low-income households who lack access to formal banking. NBFC-MFIs are a specific category of Non-Banking Financial Companies regulated by the Reserve Bank of India (RBI) that must maintain a minimum of 60% of their total assets (net of intangibles) as qualifying microfinance assets — a threshold revised downward from 75% by the RBI in June 2025 to provide greater operational flexibility. Under the RBI's Master Direction on Microfinance Loans (2022), a microfinance loan is defined as a collateral-free loan to a household with an annual income of up to ₹3 lakh.

NBFC-MFIs are regulated by the Reserve Bank of India under the RBI Act, 1934.
Qualifying assets threshold: minimum 60% of total net assets (post-June 2025 revision; earlier 75%).
A family is defined as husband, wife, and their unmarried children for income-cap purposes.
If an NBFC-MFI fails to meet the qualifying asset requirement for four consecutive quarters, it must submit a remediation plan to the RBI.

Connection to this news: The CGSMFI-2.0 scheme provides guarantee cover specifically to banks lending to NBFC-MFIs and MFIs, using the NCGTC as the guarantee intermediary — a structure that protects lending institutions and incentivises credit flow to a sector that primarily serves informal-economy households.

National Credit Guarantee Trustee Company Limited (NCGTC)

NCGTC is a wholly owned company of the Government of India under the Department of Financial Services (Ministry of Finance). It operates multiple credit guarantee schemes across sectors including MSMEs, education, and microfinance. Credit guarantee schemes work by covering a defined portion of default losses, thereby de-risking lenders and unlocking credit for borrowers who lack collateral.

Nodal department for CGSMFI-2.0: Department of Financial Services (DFS), Ministry of Finance.
Guarantee coverage: 80% of default amount for small NBFC-MFIs/MFIs; 75% for medium; 70% for large.
Guarantee fee: 0.50% per annum on the sanctioned amount in Year 1; on outstanding amount thereafter.
Interest rate cap: EBLR or MCLR plus 2% per annum on loans from member lending institutions (MLIs) to NBFC-MFIs; on-lending to borrowers capped at 1% below average lending rate of past six months.

Connection to this news: NCGTC is the implementing body for CGSMFI-2.0. The raised loan cap for large NBFC-MFIs (₹300 crore → ₹1,000 crore) is designed to allow larger MFIs to access proportionately larger lines of guaranteed credit without breaching the 20% AUM ceiling.

Financial Inclusion and the Role of Microfinance

Financial inclusion refers to the availability and equality of opportunities to access formal financial services. In India, microfinance is a key delivery channel for credit to the bottom-of-the-pyramid population, particularly women in rural and semi-urban areas. The CGSMFI-2.0 scheme is part of a broader policy framework that uses credit guarantees — rather than direct lending or interest subsidies — to crowd in private capital into underserved segments.

CGSMFI-2.0 was launched on March 20, 2026.
The scheme uses a partial credit guarantee model: the government absorbs a share of expected losses, incentivising banks to lend to MFIs at lower rates.
Total guarantee corpus authorised: up to ₹20,000 crore.
Scheme validity: up to August 31, 2026, or till the corpus is exhausted.

Connection to this news: The extension signals concern over slowing credit to the microfinance sector — the scheme acts as a counter-cyclical tool to maintain credit availability during periods of MFI asset quality stress.

Key Facts & Data

CGSMFI-2.0 launched: March 20, 2026.
Extended until: August 31, 2026, or ₹20,000 crore in guarantees issued, whichever is earlier.
Loan cap for large NBFC-MFIs/MFIs: raised from ₹300 crore to ₹1,000 crore (within 20% of AUM ceiling).
Loans sanctioned so far: ₹770 crore.
Implementing body: NCGTC (National Credit Guarantee Trustee Company Limited).
Nodal ministry: Department of Financial Services, Ministry of Finance.
Guarantee coverage: 80% (small MFIs), 75% (medium), 70% (large).
RBI qualifying asset threshold for NBFC-MFIs: 60% of total net assets (revised June 2025).