Government Launches CGSMFI-2.0 to Enable ₹20,000 Crore Microfinance Lending

New Delhi, March 21, 2026: The Government of India has introduced the Credit Guarantee Scheme for Microfinance Institutions-2.0 (CGSMFI-2.0), a targeted policy intervention aimed at revitalizing credit flow to the microfinance sector and strengthening financial inclusion across the country.

The scheme, announced through the Press Information Bureau, seeks to provide credit guarantee cover to banks and financial institutions via the National Credit Guarantee Trustee Company Limited. This mechanism is designed to safeguard lenders against potential losses arising from loans extended to Non-Banking Financial Company–Microfinance Institutions (NBFC-MFIs) and other MFIs, which in turn lend to small borrowers.

At its core, CGSMFI-2.0 aims to restore confidence among lenders and facilitate a significant expansion of credit availability in the microfinance ecosystem. The scheme is expected to enable lending of up to ₹20,000 crore, ultimately reaching nearly 36 lakh borrowers, many of whom belong to economically vulnerable sections.

Under the framework, the guarantee coverage ranges from 70% to 80%, depending on the size of the lending institution. The scheme also incorporates safeguards to ensure affordability, including a cap on interest rates linked to benchmarks such as EBLR and MCLR, along with limits on on-lending rates to end borrowers. A modest guarantee fee structure has been prescribed to maintain operational viability while ensuring participation from lending institutions.

The scheme comes at a critical juncture for the microfinance sector, which has witnessed tightened liquidity and cautious lending behavior due to prevailing financial stress. Smaller MFIs, in particular, have faced challenges in accessing funds, impacting their ability to serve last-mile borrowers. By mitigating credit risk, the government aims to reinvigorate lending activity and stabilize the sector.

Microfinance institutions play a pivotal role in India’s financial architecture by extending credit to individuals and small enterprises that often remain outside the formal banking system. In this context, CGSMFI-2.0 is expected to enhance credit penetration, support livelihoods, and stimulate grassroots economic activity.

The scheme will remain operational until June 30, 2026, or until guarantees amounting to ₹20,000 crore are issued, whichever is earlier. It aligns with the broader policy objective of fostering inclusive and sustainable economic growth, while ensuring that access to finance remains equitable and widespread.

With this initiative, the government has reinforced its commitment to building a resilient and inclusive financial ecosystem, ensuring that the benefits of economic growth extend to the most underserved segments of society.