Government launches ₹20,000cr guarantee scheme to revive microfinance sector
What's the story
The Indian government has launched a ₹20,000 crore Credit Guarantee Scheme for Microfinance Institutions (MFI) 2.0. The initiative is aimed at reviving credit flow and easing liquidity constraints in the sector. The move comes as bank funding to MFIs, especially smaller ones, has witnessed a sharp decline. According to the Microfinance Industry Network (MFIN), bank lending to this sector fell by nearly 70% between Q4 FY24 and Q3 FY26.
Impact
Scheme to restore lender confidence, says MFIN
The new scheme is expected to restore lender confidence and catalyze fresh credit from banks, particularly for small and mid-sized MFIs. These institutions have been most affected by the funding squeeze. MFIN's CEO Alok Misra described the scheme as a timely intervention that will help unlock liquidity and support sustainable growth in the sector.
Specifications
Loans under scheme to be priced at capped rate
Loans under this scheme will be priced at a capped rate linked to the External Benchmark Lending Rate (EBLR) or one-year Marginal Cost of Funds-based Lending Rate (MCLR) plus 2%. MFIs have to lend at least 1% point lower than their average rate over the last six months. The maximum tenure for these loans is three years, including a one-year moratorium period.
Coverage
Other key features of the scheme
The scheme caps exposure at 20% of an MFI's assets under management (AUM), with absolute limits of ₹100 crore for small, ₹200 crore for medium, and ₹300 crore for large MFIs. At least 5% of loans must go to small MFIs and 10% to mid-sized players. The credit guarantee cover ranges from 70% for large MFIs to 75% for medium ones and up to 80% for small ones.