Govt Launches CGSMFI-2.0 Scheme to Empower Microfinance and Secure Small Borrowers

The Government of India has launched a new scheme called the Credit Guarantee Scheme for Microfinance Institutions 2.0 (CGSMFI-2.0). The objective of this scheme is to make banks and financial institutions feel safe when they lend money to the Non-Banking Financial Company-Microfinance Institutions (NBFC-MFIs) and Microfinance Companies (MFIs). Because money is lent to small borrowers, such as low-income individuals or individuals running small businesses.

In case small borrowers fail to repay the loan, the government, through its body called National Credit Guarantee Trustee Company Limited (NCGTC), will help banks and FIs to cover the financial loss caused by the same. All the small borrowers who have recently joined and also the existing ones who fall under the regulatory definition of microfinance given by the Central Bank are permitted to apply for the scheme.

Coverage will be provided for over 80% of the disputed amount in the case of small borrowers; 75% coverage will be provided in the case of medium borrowers; and 70% of the coverage will be provided to Non-Banking Financial Company-Microfinance Institutions (NBFC-MFIs) and MFIs. Financial institutions will be required to pay a guarantee fee of 0.50% per year. In the first year, it is charged on the total loan amount approved. From the second year onwards, it is charged on the remaining unpaid loan amount.

The interest rate on loans given by MLIs to microfinance institutions such as NBFC-MFIs/MFIs can be at most EBLR or MCLR + 2% per year. When these microfinance institutions give loans to small borrowers, they must charge an interest rate that is at least 1% lower than the average rate they charged in the last 6 months.

The scheme is active till June 30, 2026, or loans up to the limit of Rs 20,000 crore will be guaranteed by the government.