Government Revises Lending Allocation Under MFI Guarantee Scheme

The National Credit Guarantee Trustee Company Ltd (NCGTC) has changed the lending norms under the Credit Guarantee Scheme for Microfinance Institutions (CGSMFI 2.0), as per a Business Standard report.  

Banks will now have to allocate at least 15% of the scheme's ₹20,000 crore guarantee cover to small- and medium-sized microfinance institutions (MFIs). Earlier, the requirement was split at 5% for small MFIs and 10% for medium-sized institutions. 

Scheme Nears End with Low Sanctions 

The guarantee scheme was announced in March this year to support bank lending to NBFC-MFIs and other MFIs for on-lending to existing and new borrowers. It came into effect on 20 March and is scheduled to close on 31 August.  

Industry executives said only a small part of the ₹20,000 crore guarantee cover has been sanctioned so far, leaving a large portion of the scheme unused in its final month. 

Lending Caps Continue 

The revised guidelines do not change the lending limits. Banks can lend up to 20% of an institution's Assets Under Management (AUM), subject to a maximum of ₹100 crore for small MFIs, ₹200 crore for medium-sized MFIs and ₹1,000 crore for large lenders.  

MFIs with AUM below ₹500 crore are classified as small, those with ₹500 crore to less than ₹2,000 crore as medium, and those above ₹2,000 crore as large. 

Industry Seeks Relaxation 

Microfinance lenders said the scheme has been held back by its operating conditions rather than a lack of demand for funds. They said the ₹200 crore ceiling for medium-sized MFIs is lower than the funding received by some institutions under a similar scheme introduced in 2022.  

Smaller lenders have also seen their borrowing capacity fall as the 20% AUM-linked limit has reduced available funding after their balance sheets shrank over the past two years. 

The industry has asked the government to increase the borrowing limit for small MFIs to 40% of AUM and raise the cap for large institutions to ₹1,500 crore from ₹1,000 crore.  

It has also sought relaxation in credit rating requirements, saying several banks continue to insist on investment-grade ratings despite the sovereign guarantee. 

Read More: Banks Collected Over ₹26,170 Crore in Minimum Balance Penalties in 4 Years: Government Data! 

Conclusion 

The revised guidelines increase the allocation for small and medium-sized MFIs under the guarantee scheme while retaining the existing lending limits. The scheme will remain open until 31 August 2026. 

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