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The Union Cabinet on Wednesday approved the continuation of the Credit Guarantee Fund for Micro Units (CGFMU) for another five years till March 31, 2031, with a corpus of Rs 5,000 crore to support loans worth Rs 12.6 lakh crore under the Pradhan Mantri Mudra Yojana (PMMY).
The decision, taken at a Cabinet meeting chaired by Prime Minister Narendra Modi, aims to improve access to collateral-free loans for micro entrepreneurs and reduce borrowing-related costs. Briefing the media on the Cabinet decisions, Union Minister Ashwini Vaishnaw said, "The scheme has been extended and strengthened for another five years. Several changes have been made, including reducing the guarantee fee to bring down costs. Steps have also been taken to increase the amount of credit available." According to the official release, the annual guarantee fee under the scheme has been reduced from 1 per cent to 0.75 per cent. The revised scheme will provide guarantee coverage for loans of up to Rs 20 lakh extended to eligible micro enterprises under PMMY. It will also cover overdraft facilities of up to Rs 10,000 provided by banks under the Pradhan Mantri Jan Dhan Yojana (PMJDY) and loans between Rs 10 lakh and Rs 20 lakh extended to Self Help Groups (SHGs). However, the guarantee fee for SHGs will remain unchanged at 0.25 per cent in the first year and 0.50 per cent in subsequent years. The government said the scheme provides credit guarantee coverage to lending institutions through the National Credit Guarantee Trustee Company Limited (NCGTC) against the risk of loan defaults. The guarantee coverage will be linked to the amount disbursed for working capital loans and the outstanding amount for term loans, reflecting the actual risk exposure of lending institutions. The revised scheme will apply to loans extended under PMMY during the period from FY 2026-27 to FY 2030-31. According to the government, more than 60.36 crore loans amounting to Rs 43.34 lakh crore have been sanctioned under PMMY since its launch, as of September 2026. The Credit Guarantee Fund for Micro Units was launched in January 2016 to encourage lending to small businesses by reducing the risk faced by financial institutions. The government said the extension would help aspiring entrepreneurs start and expand their businesses by improving access to formal credit. (ANI)
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