Government Extends Credit Guarantee Scheme for Micro Units
The Union Cabinet, led by Prime Minister Shri Narendra Modi, has announced the continuation of the Credit Guarantee Fund for Micro Units (CGFMU) for an additional five years, extending until March 31, 2031. This initiative aims to provide credit guarantee coverage to lending institutions through the National Credit Guarantee Trustee Company Limited (NCGTC), effectively mitigating default risks associated with loans.
Since the launch of the Pradhan Mantri Mudra Scheme (PMMY) in 2016, lending institutions have sanctioned over 60.36 crore loans amounting to an impressive Rs. 43.34 lakh crore as of September 2026. The launch of CGFMU has been pivotal in fostering the growth of PMMY loans across the nation, empowering a multitude of micro enterprises.
Key Features of the CGFMU Scheme
The CGFMU scheme serves several significant purposes aimed at enhancing support for micro enterprises. It guarantees loans extended to eligible micro enterprises under PMMY, which can reach up to Rs. 20 lakh. Additionally, it covers overdrafts of up to Rs. 10,000 made by banks for Pradhan Mantri Jan Dhan Yojana (PMJDY) account holders, and loans for Self Help Groups (SHGs) where the portfolio amounts to between Rs. 10 lakh to Rs. 20 lakh.
The guarantee coverage links directly to the disbursement amount for working capital limits and to the outstanding amount for term loan accounts. A reduction in the guarantee fee has also been implemented, decreasing from 1% per annum to 0.75% per annum for most institutions, while SHGs will continue to pay a fee of 0.25% for the first year and 0.50% in subsequent years.
This scheme will remain applicable to all loans disbursed under PMMY throughout the ongoing XVIth Finance Commission Cycle, which spans from fiscal year 2026-27 to 2030-31.
Positive Impact on Entrepreneurship
The CGFMU scheme has enabled a wave of entrepreneurship by facilitating collateral-free loans through PMMY. Many individuals, who were previously excluded from the formal banking system, now have the opportunity to start their businesses. The extension of this scheme is poised to catalyze an estimated Rs. 12.6 lakh crore in loans over the next five years. This significant financial backing aims to inspire young aspiring entrepreneurs and support the growth of their ventures.
By enhancing access to credit, the government’s strategic extension of the CGFMU scheme seeks to bolster the micro and small business sector, paving the way for sustainable economic growth and job creation in the country.
