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

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)