The Central Government has extended the Credit Guarantee Scheme for Microfinance Institutions-2.0 (CGSMFI-2.0) until 31 August 2026, or until guarantees worth ₹20,000 crore are issued — whichever comes first. The Finance Ministry announced the move on Wednesday, 10 June, alongside a significant increase in the loan cap for large-sized non-banking financial company microfinance institutions (NBFC-MFIs).

Key Changes to the Scheme

The government has raised the maximum loan amount cap for large-sized NBFC-MFIs/MFIs from ₹300 crore to ₹1,000 crore, subject to an overall ceiling of 20 per cent of Assets Under Management (AUM). According to the Finance Ministry statement, both the extension and the revised cap are designed to improve scheme utilisation and channel greater credit to the microfinance sector.

Background and Scheme Structure

The CGSMFI-2.0 was introduced on 20 March 2026. It provides guarantee cover to banks and financial institutions through the National Credit Guarantee Trustee Company Limited (NCGTC) against expected losses on funds extended to NBFC-MFIs and MFIs for on-lending to small borrowers. As of the date of the announcement, loans totalling ₹770 crore had been sanctioned under the scheme — a figure that underscores the headroom available before the ₹20,000 crore ceiling is reached.

Eligibility extends to existing and new small borrowers within the Reserve Bank of India's (RBI) regulatory definition of microfinance.

Guarantee Coverage and Interest Rate Caps

The scheme offers tiered guarantee coverage: 80 per cent of the amount in default for small NBFC-MFIs/MFIs, 75 per cent for medium-sized entities, and 70 per cent for large ones. The guarantee fee is set at 0.50 per cent per annum on the sanctioned amount in the first year, and on the outstanding amount thereafter.

Interest rates on loans from Member Lending Institutions (MLIs) to NBFC-MFIs or MFIs are capped at the External Benchmark Lending Rate (EBLR) or Marginal Cost of Funds-based Lending Rate (MCLR) plus 2 per cent per annum. When on-lending to small borrowers, MFIs must cap their rates at 1 per cent below their average lending rate over the previous six months.

Why It Matters

The microfinance sector has faced stress in recent quarters, with rising delinquencies and tightening liquidity squeezing smaller lenders. This comes amid broader concerns about overleveraging among low-income borrowers, which the RBI has flagged in successive supervisory reviews. By tripling the loan cap for large NBFC-MFIs and extending the scheme's runway, the Centre is signalling a deliberate push to keep credit flowing to the bottom of the pyramid. Notably, the ₹770 crore sanctioned so far represents less than 4 per cent of the ₹20,000 crore ceiling, suggesting the scheme has significantly underperformed initial expectations — making the structural tweaks all the more urgent.

What Comes Next

With the deadline now set at 31 August 2026, lenders and MFIs have a defined window to scale up utilisation. Industry observers will watch whether the higher cap for large NBFC-MFIs translates into meaningful disbursements to the last-mile borrowers the scheme is designed to serve.