In efforts to enhance credit flow to the microfinance sector, the government has rolled out a Rs 20,000-crore Credit Guarantee Scheme for Microfinance Institutions-2.0 (CGSMFI-2.0). The scheme comes amid ongoing financial stress in the microfinance sector, which has been leading to slowdown in lending by banks to Microfinance Institutions (MFIs) due to which smaller MFIs are struggling to get loans.

The scheme will provide guarantee cover to Banks/ Financial Institution (FIs) through National Credit Guarantee Trustee Company (NCGTC) against expected losses on the financial assistance extended by them to Non-Banking Financial Company-Microfinance Institutions (NBFC-MFIs) and MFIs for on lending to small borrowers.

Under the scheme, the eligible borrowers include existing or new small borrowers within the regulatory definition of micro finance as prescribed by RBI from time to time. The guarantee coverage will be 80% of amount in default for small, 75% for medium and 70% for large NBFC-MFIs/ MFIs. The guarantee fee will be 0.50% p.a., on sanctioned amount (1st year) & outstanding amount (thereafter). Besides, the scheme will be valid till June 30, 2026 or loans till Rs 20,000 crore are guaranteed, whichever is earlier.