Micro-Lenders Receive ₹8,000 Crore Credit Guarantee to Ease Funding Crunch

The government has cleared a fresh ₹8,000 crore credit guarantee programme to ease funding pressure on microfinance institutions (MFIs), which are grappling with rising delinquencies and constrained access to bank credit, as per news report. 

Structure and Implementation of the Scheme 

The Expenditure Finance Committee has approved the credit guarantee facility, which will be rolled out outside the Union Budget framework. As a result, it will not be part of the 2026-27 Budget announcement and is expected to be implemented within the current financial year ending March 31.  

The scheme is designed to encourage banks to lend to MFIs, particularly smaller entities facing acute liquidity stress. The industry had originally sought a ₹20,000 crore support package, following which the Department of Financial Services forwarded the proposal to the Department of Expenditure for evaluation. 

The guarantee cover will be extended through the National Credit Guarantee Trustee Company. 

Sector Context and Expected Impact 

The move comes against the backdrop of renewed stress in the microfinance sector, especially among medium and small lenders.  

A similar credit guarantee scheme was introduced during the pandemic in 2021, when a ₹7,500 crore fund was created to support bank lending to MFIs, offering up to 75% guarantee cover on defaulted loans.  

That intervention helped boost sectoral growth to around 50% before asset quality concerns resurfaced from 2024. 

The new guarantee is expected to restore lender confidence and improve credit flow to the most affected segments of the microfinance ecosystem. 

Read More: Centre Launches ₹4,531 Crore Market Access Support Scheme for Exporters! 

Conclusion  

The approved credit guarantee scheme aims to revive credit flow to microfinance institutions, particularly smaller players facing liquidity constraints. Implemented outside the Union Budget, it reflects targeted government intervention to stabilise the sector, restore lender confidence, and support sustainable recovery amid persistent asset quality challenges. 

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