The Government of India has launched the Credit Guarantee Scheme for Microfinance Institutions-2.0 (CGSMFI-2.0), a targeted intervention to support lending in the microfinance sector. Announced in March 2026, the scheme provides guarantee coverage through the National Credit Guarantee Trustee Company Limited (NCGTC) to banks and financial institutions extending loans to Non-Banking Financial Company-Microfinance Institutions (NBFC-MFIs) and MFIs for on-lending to small borrowers. The scheme aims to restore credit flow to the microfinance sector, which has faced financial stress that has led banks to reduce lending.
MICROFINANCE SECTOR CHALLENGES
Microfinance institutions play a pivotal role in India's financial inclusion drive, delivering small, collateral-free loans to low-income households. However, the microfinance sector has faced financial stress, which has led to reduced lending from banks.
CGSMFI-2.0 directly tackles this by offering a structured risk-sharing mechanism. The scheme incentivizes banks and lending institutions to fund NBFC-MFIs and MFIs for small borrowers with reduced risk exposure. Eligible borrowers are defined per the Reserve Bank of India's (RBI) microfinance regulations, encompassing existing and new small borrowers.
TIERED GUARANTEE COVERAGE
The scheme's core feature is its tiered guarantee coverage: 80% for small MFIs, 75% for medium MFIs, and 70% for large NBFC-MFIs/MFIs, of the amount in default. A guarantee fee of 0.50% per annum applies—calculated on the sanctioned amount in the first year and on the outstanding amount thereafter. Interest rates on loans to MFIs are capped at the External Benchmark Lending Rate (EBLR) or Marginal Cost of Funds based Lending Rate (MCLR) plus 2% per annum, with on-lending to small borrowers required to be 1% below the average rate of the past six months.
Operational until June 30, 2026, or until ₹20,000 crore in loans are guaranteed—whichever comes first—the scheme is projected to enable on-lending to approximately 36 lakh small borrowers. NCGTC manages the guarantees.
BROADER ECONOMIC IMPACT
The scheme's stated aims include supporting self-employment and women's empowerment.
RISKS AND IMPLEMENTATION
Loans under the scheme must go to small borrowers as defined in RBI's microfinance regulations.
Implementation details are accessible via NCGTC's portal, including salient features and documentation. Lenders must observe the guarantee fee and interest-rate caps.