India Launches Credit Guarantee Scheme 2.0 to Support Microfinance Lending
The Government of India has launched the Credit Guarantee Scheme for Microfinance Institutions 2.0 (CGSMFI 2.0) to strengthen lending to small borrowers through enhanced credit guarantees. Announced by the Ministry of Finance on 21 March 2026, the scheme is designed to encourage banks and financial institutions to extend credit to non-banking financial company–microfinance institutions (NBFC-MFIs) and microfinance institutions (MFIs). By mitigating expected losses, the programme aims to expand access to finance among economically vulnerable households.
According to the official notification published by the Government of India, the scheme will be implemented through the National Credit Guarantee Trustee Company Limited (NCGTC). Details of the programme were outlined in a press release issued by the Press Information Bureau, which sets out the operational framework and eligibility criteria.
Purpose and scope of CGSMFI 2.0
The primary objective of CGSMFI 2.0 is to provide guarantee cover to banks and other lending institutions against expected losses on loans extended to NBFC-MFIs and MFIs. These institutions, in turn, lend to small borrowers who fall within the Reserve Bank of India’s regulatory definition of microfinance. The Ministry of Finance estimates that the scheme could facilitate additional lending of up to ₹20,000 crore (Indian rupees) to the sector.
By reducing risk for lenders, the scheme seeks to address a contraction in credit to smaller microfinance providers, which has emerged amid financial stress in parts of the sector. The approach aligns with broader policy efforts to promote financial inclusion, as discussed in analysis of how India is advancing digital inclusion and entrepreneurial growth across underserved communities.
Key design features
The scheme differentiates guarantee coverage based on the size of the participating NBFC-MFI or MFI. For smaller institutions, the guarantee covers up to 80% of the default amount, while medium-sized institutions receive coverage of 75% and larger entities 70%. This graduated structure is intended to provide stronger support to smaller lenders with more limited balance sheets.
A guarantee fee of 0.50% per annum applies to the sanctioned amount in the first year, and to the outstanding amount in subsequent years. Interest rates on loans extended by member lending institutions to NBFC-MFIs or MFIs are capped at the external benchmark lending rate or marginal cost of funds-based lending rate plus 2% per annum. When lending onwards to small borrowers, MFIs are required to keep interest rates up to 1% below the average lending rate of the previous six months.
Eligibility and duration
Eligible borrowers include both existing and new small borrowers who meet the Reserve Bank of India’s definition of microfinance from time to time. The scheme will remain valid until 30 June 2026 or until guarantees are issued for loans amounting to ₹20,000 crore, whichever occurs earlier.
Expected impact on microfinance and inclusion
The Ministry of Finance expects CGSMFI 2.0 to facilitate lending to approximately 3.6 million small borrowers through NBFC-MFIs and MFIs. Microfinance plays a critical role in extending credit to households at the lower end of the income distribution, and the scheme is positioned as a targeted response to recent constraints on institutional funding.
By incentivising banks to re-engage with smaller microfinance providers, the initiative complements wider financial sector reforms and international cooperation on innovation, including efforts highlighted in India’s growing collaboration on fintech and financial innovation. Together, these measures underline a policy focus on sustaining credit flows to communities most dependent on microfinance.
