Advertisement
When should a housing society in Mumbai start considering re...
From GST on JDAs to SEBI’s REIT reclassification and the S...
Stay ahead in the world of real estate with our daily podcas...
Stay ahead in the world of real estate with our daily podcas...
The government has approved a limited-period INR 20,000 crore Credit Guarantee Scheme for Microfinance Institutions (CGSMFI-2.0) to address funding challenges faced by the sector. The scheme, operational until end-June, will cover loans extended by banks and other lenders to microfinance institutions (MFIs) and NBFC-MFIs for onward lending to small borrowers. It introduces caps on interest rates, loan tenures, and exposure limits, while mandating allocation of funds across small and mid-sized MFIs. The move comes amid rising non-performing assets in the sector, which have constrained access to bank funding. Industry bodies have welcomed the initiative, stating it will improve liquidity and support credit flow to underserved segments.
The government has approved a INR 20,000 crore Credit Guarantee Scheme for Microfinance Institutions (CGSMFI-2.0) to facilitate funding access for the sector, which has been facing liquidity constraints due to rising non-performing assets, according to a circular issued by the National Credit Guarantee Trustee Company (NCGTC) in the past week. The scheme will remain operational for a limited period, covering loans disbursed until the end of June. Advertisement
Under the framework, member lending institutions (MLIs), including banks and other financial entities, will be eligible to extend loans to microfinance institutions (MFIs) and non-banking finance company-MFIs (NBFC-MFIs), which will subsequently on-lend these funds to small borrowers. The scheme aims to provide partial credit guarantees to encourage lenders to resume funding to the sector.
The eligibility criteria and operational guidelines include caps on interest rates and defined lending conditions. Loans extended by MLIs to MFIs must be priced at either the External Benchmark Lending Rate (EBLR) or the one-year marginal cost of funds-based lending rate, plus a maximum spread of 2 per cent. Additionally, MFIs are required to lend onward to borrowers at a rate at least 1 per cent lower than their average lending rate over the preceding six months.
The scheme also prescribes a maximum loan tenure of three years, comprising a one-year moratorium followed by a two-year repayment period. To ensure equitable distribution of funds, MLIs are required to allocate a minimum of 5 per cent of the total sanctioned amount to small MFIs with assets under management (AUM) below INR 500 crore, and at least 10 per cent to mid-sized institutions with AUM between INR 500 crore and INR 2,000 crore.
Further limits have been placed on exposure, with loans capped at 20 per cent of the respective MFI's AUM. In absolute terms, the maximum loan amount has been set at INR 100 crore for small MFIs, INR 200 crore for mid-sized entities, and INR 300 crore for large MFIs.
The introduction of CGSMFI-2.0 comes at a time when the microfinance sector has been facing pressure due to a rise in non-performing assets, which has made lenders cautious about extending fresh credit. The guarantee mechanism is expected to mitigate risk perception among banks and improve liquidity flows into the sector.
The Microfinance Institutions Network (MFIN), a self-regulatory body for the industry, stated that the scheme is a timely intervention to address funding constraints. Its chief executive indicated that while credit quality has shown improvement and lending practices have stabilised, access to bank funding has remained a key challenge.
The scheme is intended to support continued credit delivery to underserved and low-income borrowers, who form the primary customer base of microfinance institutions, while maintaining regulatory oversight and lending discipline.
Source - PTI
5th Jun, 2025
25th May, 2023
11th May, 2023
27th Apr, 2023
Advertisement
Facebook
Whatsapp
