New Delhi, Mar 21 (KNN) The government has approved a limited-period Rs 20,000-crore credit guarantee scheme to ease funding constraints faced by microfinance institutions (MFIs).
The Credit Guarantee Scheme for Microfinance Institutions-2.0 (CGSMFI-2.0) will support loans extended by member lending institutions (MLIs), including banks and other lenders, to MFIs and NBFC-MFIs until the end of June, the National Credit Guarantee Trustee Company (NCGTC) said in a circular.
MFIs, which primarily serve borrowers at the bottom of the economic pyramid, have faced funding challenges due to rising non-performing assets (NPAs), making lenders cautious about fresh exposure.
Key Features of CGSMFI-2.0
Key features of CGSMFI-2.0 include funding and lending terms, loan tenure, and allocation by institution size. Multilateral lending institutions (MLIs) will provide loans to MFIs and NBFC-MFIs based on internal assessments for onward lending to eligible small borrowers.
Interest rates on these loans will be capped at the External Benchmark Lending Rate (EBLR) or the one-year marginal cost of funds-based lending rate plus 2 per cent, while MFIs must lend to small borrowers at rates at least 1 per cent below the average lending rate charged over the previous six months.
The maximum loan tenure is three years, comprising a one-year moratorium followed by a two-year repayment period. Allocation under the scheme is structured by institution size, with small MFIs (AUM under Rs 500 crore) receiving at least 5 per cent of the total allocation, and mid-sized MFIs (AUM Rs 500 crore–2,000 crore) receiving at least 10 per cent.
The circular noted, “The maximum amount of loan which can be sanctioned by MLIs to NBFC- MFIs/MFIs shall be capped at 20 per cent of AUM of respective NBFC-MFI/MFI subject to a maximum of Rs 100 crore to small size, Rs 200 crore to medium size and Rs 300 crore to large size NBFC-MFIs/MFIs.”
Industry Response
The Microfinance Institutions Network (MFIN), the sector’s self-regulatory body, welcomed the initiative as a timely measure to improve liquidity.
Alok Misra, MFIN Chief Executive and Director, said, “The sector has demonstrated strong improvement in credit quality and adherence to responsible lending practices. The key constraint has been the availability of bank funding,” PTI reported.
The scheme is expected to provide a significant boost to MFIs, enabling continued lending to underserved communities and strengthening financial inclusion across the country.
(KNN Bureau)
