Union Cabinet Extends CGFMU Scheme Till March 2031 and Cuts Guarantee Fee to 0.75%

NEW DELHI — The Union Cabinet has approved the continuation of the Credit Guarantee Fund for Micro Units (CGFMU) for another five years until March 31, 2031. The decision aims to support collateral-free lending under the Pradhan Mantri Mudra Yojana (PMMY) and improve access to formal credit for micro entrepreneurs.

Chaired by Prime Minister Narendra Modi, the Cabinet meeting cleared a corpus of Rs 5,000 crore to support loans worth Rs 12.6 lakh crore under the scheme. Briefing the media, Union Minister Ashwini Vaishnaw stated that the scheme has been extended and strengthened to reduce borrowing-related costs and increase the availability of credit for small businesses.

As part of the structural revisions, the annual guarantee fee under the scheme has been reduced from 1 per cent to 0.75 per cent. The revised framework 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 ranging from Rs 10 lakh to Rs 20 lakh extended to Self Help Groups (SHGs). For SHGs, however, the guarantee fee will remain unchanged at 0.25 per cent in the first year and 0.50 per cent in subsequent years.

The scheme provides credit guarantee coverage to lending institutions through the National Credit Guarantee Trustee Company Limited (NCGTC) to mitigate the risk of loan defaults. The guarantee coverage is linked directly to the amount disbursed for working capital loans and the outstanding amount for term loans, reflecting the actual risk exposure of financial institutions.

The revised guidelines will apply to loans extended under PMMY from fiscal year 2026-27 through fiscal year 2030-31. Launched initially in January 2016 to encourage lending to small enterprises by reducing institutional risk, the PMMY has sanctioned more than 60.36 crore loans amounting to Rs 43.34 lakh crore as of September 2026.

"The extension of the CGFMU scheme and the reduction of the guarantee fee to 0.75 percent are positive steps for the micro-enterprise sector in India. By lowering borrowing costs and providing credit guarantee coverage up to Rs 20 lakh, the initiative reduces the risk burden for financial institutions. This will likely encourage banks to increase formal credit flow to early-stage micro entrepreneurs and Self Help Groups, supporting grassroots business expansion." — Dr. Shishir Gupta, Founder & CEO, StartupLanes