The Centre has extended the Credit Guarantee Scheme for Microfinance Institutions-2.0 (CGSMFI-2.0) by two months until August 31, 2026, or until guarantees amounting to ₹20,000 crore are issued, whichever is earlier. According to the latest PIB release, the scheme's maximum loan amount cap for Large-Sized NBFC-MFIs/MFIs has been increased to ₹1,000 crore from ₹300 crore, subject to an overall ceiling of 20% of Assets under Management (AUM). As reported by Business Standard, this extension aims to improve credit flow to small borrowers through better scheme utilization, with the extension and enhancement in loan limits expected to improve utilisation of the scheme and support higher credit flow to the NBFC-MFI ecosystem. The Ministry of Finance stated that the changes are aimed at improving utilisation of the scheme and boosting credit flow to the microfinance sector.
The Microfinance Institutions Network (MFIN), a self-regulatory organisation for microfinance lenders, expects stronger participation in the government's credit guarantee scheme after its validity was extended. According to Business Standard, Alok Misra, CEO and director of MFIN, stated that implementation gained momentum only after FAQs were issued in May, as April is typically a busy period for banks due to year-end activities and planning. "We are now seeing banks and institutions actively participating, and there are sufficient applications in the pipeline," Misra said, adding that the extension provides additional time for the scheme to gain traction and should provide the needed boost to funding, particularly for small and medium MFIs. The scheme provides guarantee cover to commercial banks and all-India financial institutions for loans extended to non-banking financial company-microfinance institutions (NBFC-MFIs) and other MFIs for on-lending to existing or new small borrowers.
The CGSMFI-2.0 scheme, introduced on March 20, 2026, has already demonstrated significant activity with loans totalling ₹770 crore sanctioned as of June 10, 2026. According to the Finance Ministry statement, the scheme provides guarantee cover to Banks/FIs through the National Credit Guarantee Trustee Company Limited (NCGTC) against expected losses from financial assistance to NBFC-MFIs and MFIs for lending to small borrowers. The scheme covers 80% of the amount in default for small borrowers, 75% for medium, and 70% for large NBFC-MFIs/MFIs, with the extension expected to expand access to affordable credit for small borrowers across the country. The government stated that the scheme is designed to strengthen lending to microfinance institutions and support increased credit flow of up to ₹20,000 crore to the sector.
The enhanced loan limits are expected to facilitate greater participation by eligible institutions and improve access to guaranteed funding, as noted by industry executives. According to Business Standard, large MFIs account for a major share of the portfolio, and the enhanced limit of ₹1,000 crore can be readily absorbed. The dispensation for large MFIs and the extension of the validity period came following requests from industry associations, with funding costs emerging as a concern as lenders turned selective following deterioration in asset quality over the past year. As reported by CRIF High Mark, the microfinance portfolio remained stable at ₹3.31 lakh crore in April 2026, registering a marginal month-on-month increase of 0.1%, while active loans declined by 1.2% over the same period, indicating an ongoing shift towards higher-ticket lending and portfolio consolidation.
Under the scheme, interest rates are structured with EBLR or MCLR plus 2% on loans by MLIs to NBFC-MFIs or MFIs. As reported by Business Standard, on-lending to small borrowers by these MFIs/NBFC-MFIs must cap the interest rate at 1% below the average lending rate over the past 6 months. The guarantee fee is set at 0.5% per annum on the sanctioned amount for the first year and outstanding amount thereafter, with interest rates under the scheme remaining capped at EBLR or MCLR plus 2 percent per annum, while on-lending norms ensure lower borrowing costs for end microfinance customers.
