Government's Credit-Guarantee Scheme for Microfinance Institutions (MFIs)
The government has introduced a ₹20,000 crore credit-guarantee scheme to mitigate liquidity issues faced by MFIs. This initiative aims to enhance credit flow and support underserved communities, promoting financial inclusion.
Scheme Details
- The scheme will be operational from March 20 to June 30, or until the guarantee coverage reaches ₹20,000 crore.
- The primary focus is on providing guarantee coverage for loans extended to MFIs by scheduled commercial banks and all-India financial institutions.
- It encourages incremental lending, targeting fresh loans to small borrowers in line with RBI's definition of microfinance.
Guarantee Coverage Structure
- Small MFIs: Those with assets under management (AUM) of less than ₹500 crore receive 80% guarantee cover.
- Medium MFIs: With AUM between ₹500 crore and ₹2,000 crore, they receive 75% guarantee cover.
- Large MFIs: With AUM of ₹2,000 crore or more, they receive 70% guarantee cover.
Impact and Expectations
The Microfinance Industry Network (MFIN) expects the scheme to boost bank lending confidence, especially for small and medium MFIs. These institutions have seen a 70% decline in bank funding from Q4 2023-24 to Q3 2025-26, affecting nearly five million borrowers' access to formal credit.
Operational Guidelines
- Interest Rates: Capped at the external benchmark lending rate or the one-year marginal cost of lending rate plus 2% per annum. MFIs must lend at least 1% below their average rate from the past six months.
- Loan Distribution: At least 5% of loans under the scheme to small MFIs and 10% to medium-sized ones.
- Loan Tenure: Maximum of three years, including a one-year moratorium and two years for repayment.
- Lending Limits:
- Small MFIs: Loans capped at 20% of AUM, up to ₹100 crore.
- Medium MFIs: Loans capped at 20% of AUM, up to ₹200 crore.
- Large MFIs: Loans capped at 20% of AUM, up to ₹300 crore.
- Guarantee Fee: MLIs to pay NCGTC 0.5% of the sanctioned amount initially and subsequently 0.5% of the outstanding amount annually.
- Asset Creation: MFIs must create fresh loan assets within three months of disbursement and maintain separate accounts for these credit facilities.
- NPA Classification: MLIs can claim the defaulted amount annually if an MFI account becomes a non-performing asset.
