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Rs 20,000 Crore Credit Boost for Microfinance, Aims to Aid 36 Lakh Borrowers

The government has introduced the Credit Guarantee Scheme for Microfinance Institutions 2.0 to strengthen lending to the sector. The scheme, managed through the NCGTC, aims to facilitate credit flow of up to Rs 20,000 crore to NBFC-MFIs and MFIs. It is designed to address a lending slowdown by providing banks with guarantee cover against potential losses on loans extended to microfinance institutions. An estimated 36 lakh small borrowers are expected to benefit from the increased on-lending.

Key Points: Govt Launches Rs 20,000 Crore Credit Guarantee Scheme for MFIs

  • Rs 20,000 crore credit flow target
  • Guarantee cover up to 80% for losses
  • To benefit ~36 lakh MFI borrowers
  • Interest rate caps for lenders and borrowers
2 min read

Government introduces Credit Guarantee Scheme for Microfinance Institutions 2.0 to facilitate credit flow

New Credit Guarantee Scheme for MFIs 2.0 to facilitate Rs 20,000 crore in credit flow, benefiting an estimated 36 lakh small borrowers.

"The scheme will facilitate increased credit flow to the MFI sector. - Official Release"

New Delhi, March 21

The Centre has introduced Credit Guarantee Scheme for Microfinance Institutions-2.0, which will facilitate increased credit flow to the MFI sector.

The scheme aims to provide credit guarantee support through NCGTC to strengthen lending to MFIs and facilitates increased credit flow of up to Rs 20,000 crore to the NBFC-MFIs.

The scheme is expected to benefit approximately 36 lakh MFI borrowers.

An official release said that the scheme aims to provide guarantee cover to Banks/FIs through National Credit Guarantee Trustee Company Limited (NCGTC) against expected losses on the financial assistance extended by them to Non-Banking Financial Company-Microfinance Institutions (NBFC-MFIs) and MFIs for on-lending to small borrowers.

The eligible borrowers include existing or new small borrowers within the regulatory definition of micro finance as prescribed by RBI from time to time.

The guarantee coverage will be 80% of amount in default for small, 75% for medium and 70% for large NBFC-MFIs/ MFIs.

The guarantee fee will be 0.50% pa, on sanctioned amount (first year) and outstanding amount thereafter.

Interest Rate will be capped at EBLR or MCLR + 2% pa, on loans by MLIs to NBFC-MFIs or MFIs.

While on-lending to small borrowers, these lenders shall cap the interest rate at one per cent below the average rate of lending in past 6 months.

It will be valid till June 30 this year or loans till Rs 20,000 crores are guaranteed, whichever is earlier.

"The scheme will facilitate increased credit flow to the MFI sector. It is estimated that the scheme will facilitate on-lending by NBFC-MFIs/ MFIs to approximately 36 lakh small borrowers," the release said.

The release said that microfinance plays a key role in financial inclusion by delivering credit to people at the bottom of the economic pyramid.

NBFC-MFIs and MFIs are the key participants in the microfinance lending business. In view of ongoing financial stress in the microfinance sector, there has been a slowdown in lending by banks to MFIs due to which smaller MFIs are struggling to get loans, the release said, adding that the scheme aims to encourage lending institutions to provide funding to NBFC-MFIs or MFIs for on-lending to small borrowers within the regulatory definition of micro finance as prescribed by the Reserve Bank of India.

- ANI

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Reader Comments

R
Rohit P
Rs 20,000 crore and 36 lakh borrowers sounds impressive on paper. The key will be the execution and ensuring the smaller MFIs, not just the large ones, actually benefit. The interest rate cap for end-borrowers is a good consumer protection measure.
A
Aman W
As someone who works with an NGO in rural MP, I've seen the stress in the microfinance sector first-hand. This intervention was needed. However, the scheme is valid only till June 30? That's a very short window. Why not a longer-term policy?
S
Sarah B
Financial inclusion is crucial for development. If this helps get credit to street vendors, small farmers, and home-based artisans who are often excluded from traditional banking, it's a step in the right direction. The 80% guarantee for small MFIs is a smart tiered approach.
V
Vikram M
Good initiative. But we must also focus on financial literacy. Giving loans is one thing, ensuring people use them productively and can repay is another. Hope there's a component for that as well. Otherwise, we might see the same stress cycles repeat.
K
Karthik V
The details look well-structured – different guarantee coverage based on size, interest rate caps at both levels. This should restore confidence of banks in lending to MFIs. Ultimately, the small borrower at the last mile is the one who should feel the positive impact. Jai Hind!

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