The Government of India has recently introduced the Credit Guarantee Scheme for Microfinance Institutions–2.0 (CGSMFI-2.0) to strengthen credit flow to the microfinance sector and improve financial inclusion for small borrowers.
About the Scheme
The Credit Guarantee Scheme for Microfinance Institutions–2.0 aims to provide a credit guarantee cover to Banks and Financial Institutions through the National Credit Guarantee Trustee Company Limited.
Under this scheme:
It provides guarantee against expected loan losses.
It covers financial assistance extended to NBFC-MFIs and MFIs.
These institutions further provide on-lending to small borrowers in the microfinance sector.
The scheme is designed to improve credit access for economically weaker sections through institutional lending channels.
Key Features of the Scheme
1. Eligible Borrowers
The scheme covers:
Existing and new small borrowers
Defined under the Reserve Bank of India (RBI) norms for microfinance activities
2. Guarantee Coverage
The guarantee cover varies based on the size of the lending institution:
80% coverage for small NBFC-MFIs/MFIs
75% coverage for medium NBFC-MFIs/MFIs
70% coverage for large NBFC-MFIs/MFIs
This tiered structure helps balance risk-sharing between lenders and the guarantee agency.
3. Guarantee Fee
A fee of 0.50% per annum is charged on the sanctioned amount in the first year.
In subsequent years, the fee is charged on the outstanding loan amount.
4. Validity of the Scheme
The scheme is valid:
Until 30 June 2026, or
Until guarantees are extended for loans worth ₹20,000 crore, whichever is earlier.
Impact of the Scheme
The CGSMFI–2.0 is expected to have significant financial inclusion benefits:
It will increase credit flow to the microfinance sector.
It will enable NBFC-MFIs and MFIs to expand lending operations.
It is estimated to benefit around 36 lakh small borrowers through on-lending support.
It strengthens the formal credit system for low-income households and micro-entrepreneurs.
Conclusion
The Credit Guarantee Scheme for Microfinance Institutions–2.0 (CGSMFI-2.0) is a key policy intervention aimed at enhancing financial inclusion and credit accessibility. By providing risk coverage to lenders through the National Credit Guarantee Trustee Company Limited, the scheme strengthens the microfinance ecosystem and ensures better credit flow to vulnerable and underserved sections of society.
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Every aspirant is unique and the mentoring is customised according to the strengths and weaknesses of the aspirant.
In every Lecture. Director Sir will provide conceptual understanding with around 800 Mindmaps.
We provide you the best and Comprehensive content which comes directly or indirectly in UPSC Exam.
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