Overview
The government extended the Credit Guarantee Scheme for Microfinance Institutions (CGSMFI-2.0) until 31 August 2026. It also raised the loan limit for large NBFC-MFIs from ₹300 crore to ₹1,000 crore. The scheme aims to boost credit flow to small borrowers and support financial inclusion.
Strengthening the Microfinance Sector
Microfinance institutions (MFIs) provide small loans to poor families, women entrepreneurs, and small businesses. These borrowers often do not have access to formal banks. To help these institutions lend more, the government launched the Credit Guarantee Scheme for Microfinance Institutions 2.0 (CGSMFI-2.0) on 20 March 2026. On 10 June 2026, the government announced two major changes. First, the scheme has been extended until 31 August 2026. Second, the maximum loan amount for large NBFC-MFIs has been raised from ₹300 crore to ₹1,000 crore. These changes will help more money reach the hands of the poor.
What is CGSMFI-2.0?
CGSMFI-2.0 is a credit guarantee scheme. It means the government promises to cover some losses if a bank or financial institution lends to an MFI and the MFI defaults. The guarantee is provided through the National Credit Guarantee Trustee Company Limited (NCGTC) . The scheme covers different percentages of default losses based on the size of the MFI:
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Small NBFC-MFIs and MFIs: Government covers up to 80% of losses.
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Medium-sized institutions: Government covers about 75% .
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Large institutions: Government covers up to 70% .
The annual guarantee fee is fixed at 0.50% . This low fee makes it easy for MFIs to participate.
Changes Announced in June 2026
On 10 June 2026, the government approved two key changes:
1. Extension of Scheme Validity
The scheme was originally set to expire at an earlier date. Now it has been extended until 31 August 2026 . This gives more time for banks and MFIs to use the guarantee facility.
2. Increased Loan Limit for Large NBFC-MFIs
The maximum loan amount that a large NBFC-MFI can get under the scheme has been raised from ₹300 crore to ₹1,000 crore . However, this is subject to a ceiling of 20% of the institution’s Assets Under Management (AUM) . This means if an NBFC-MFI has an AUM of ₹5,000 crore, it can get a guaranteed loan up to ₹1,000 crore (which is 20% of AUM). For smaller institutions, the old limits remain.
Why Were These Changes Needed?
The microfinance sector faced some challenges. Many large MFIs needed more credit to expand their lending to small borrowers. The old limit of ₹300 crore was too low for them. By raising the limit to ₹1,000 crore, the government allows larger MFIs to borrow more and lend more. Also, the extension ensures that the scheme does not end abruptly. This gives confidence to lenders.
How the Scheme Helps the Poor
Microfinance loans are usually small – sometimes as low as ₹5,000 to ₹50,000. They are used by women to start a small business, by farmers to buy seeds, or by families to pay for medical emergencies. When MFIs get guarantees from the government, banks are more willing to lend to them. This increases the pool of money available for microfinance. Since the scheme started on 20 March 2026, loans worth ₹770 crore have already been sanctioned under CGSMFI-2.0. The target is to facilitate up to ₹20,000 crore in credit.
A Human Touch: What This Means for a Small Borrower
Imagine a woman named Geeta. She lives in a small village in Bihar. She wants to start a poultry business but needs a loan of ₹20,000. The nearest bank is 20 km away. She approaches a local MFI. That MFI, in turn, borrows from a bank using the CGSMFI-2.0 guarantee. Because the bank’s risk is covered, it approves the loan to the MFI. Geeta gets her ₹20,000. She buys chicks and feed. Within a year, she earns a profit and repays the loan. This cycle repeats for millions of women. The extension and higher loan limits mean that more MFIs can serve more women like Geeta.
Impact on Financial Inclusion
India has made great progress in financial inclusion. The Pradhan Mantri Jan Dhan Yojana opened bank accounts for millions. But many account holders still need small loans. Traditional banks are often reluctant to lend small amounts. MFIs fill this gap. CGSMFI-2.0 supports these MFIs by reducing the risk for banks. The scheme is a classic public-private partnership. The government does not give direct loans. It provides a guarantee. This leverages private capital for social good.
Role of NCGTC
The National Credit Guarantee Trustee Company Limited (NCGTC) is the implementing agency. It was set up by the government to manage various credit guarantee schemes. NCGTC collects guarantee fees and pays claims to banks when defaults happen. The annual guarantee fee of 0.50% is very low. This keeps the cost of borrowing low for MFIs.
Scheme Targets and Achievements
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Launched: 20 March 2026
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Sanctioned loans so far: ₹770 crore
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Target credit facilitation: ₹20,000 crore
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Guarantee coverage: Up to 80% for small MFIs, 75% for medium, 70% for large
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Annual fee: 0.50%
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New loan limit for large MFIs: ₹1,000 crore (subject to 20% of AUM)
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Extension date: Till 31 August 2026
Conclusion
The extension of CGSMFI-2.0 and the increase in loan limit for large MFIs are wise moves. They show that the government understands the needs of the microfinance sector. More credit will flow to small borrowers. Women, farmers, and small business owners will get the funds they need to improve their lives. The scheme is a small step with a big impact.
Exam-Focused Points
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Scheme name: Credit Guarantee Scheme for Microfinance Institutions 2.0 (CGSMFI-2.0)
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Launched on: 20 March 2026
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Extended till: 31 August 2026
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Implementing agency: National Credit Guarantee Trustee Company Limited (NCGTC)
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Old loan limit for large NBFC-MFIs: ₹300 crore
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New loan limit: ₹1,000 crore (subject to 20% of AUM)
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Guarantee coverage: Small – 80%, Medium – 75%, Large – 70%
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Annual guarantee fee: 0.50%
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Loans sanctioned so far: ₹770 crore
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Target credit: ₹20,000 crore
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Purpose: Boost credit flow to microfinance sector and small borrowers
Frequently Asked Questions (FAQ)
Q1: What is CGSMFI-2.0?
A: It is a credit guarantee scheme where the government covers a percentage of loan defaults by microfinance institutions, encouraging banks to lend to them.
Q2: How long has the scheme been extended?
A: The scheme has been extended until 31 August 2026 .
Q3: What is the new loan limit for large NBFC-MFIs?
A: The limit has been increased from ₹300 crore to ₹1,000 crore , subject to 20% of the institution’s Assets Under Management (AUM).
Q4: How much loan has already been sanctioned under the scheme?
A: Loans worth ₹770 crore have been sanctioned since the scheme launched on 20 March 2026.
Q5: Who implements the scheme?
A: The National Credit Guarantee Trustee Company Limited (NCGTC) implements the scheme.