Synopsis:- The new CGSMFI 2.0 scheme aims to boost ₹20,000 crore lending with 70–80% guarantees, higher than ₹7,500 crore earlier. While it supports smaller MFIs through easier funding and rate caps, the ₹300 crore limit may restrict benefits for larger players.
The Central government has launched a new version of the Credit Guarantee Scheme for Microfinance Institutions, called CGSMFI 2.0. Under this, the National Credit Guarantee Trustee Company (NCGTC) will act as a guarantor when banks and financial institutions lend money to NBFC-MFIs and other microfinance lenders.
In simple terms, if an MFI cannot repay the bank, the government’s guarantee body steps in to cover most of the loss. This makes banks more comfortable giving loans to MFIs, who then pass on that money to small borrowers in villages and towns.
How much guarantee does each MFI get?
The scheme offers higher protection to smaller MFIs, with 80% guarantee cover, compared to 75% for medium and 70% for large players. This structure reflects higher risk at smaller levels, encouraging lenders to support them while balancing risk exposure across the sector.
What are the rate caps?
Banks cannot charge MFIs more than EBLR or MCLR plus 2%. MFIs, in turn, cannot charge borrowers more than 1% below their own average lending rate of the past six months. This is meant to keep the final cost of borrowing affordable for small customers.
How is it bigger than the 2021 version?
The earlier CGSMFI scheme, launched in 2021, had a total corpus of just ₹7,500 crore. The new version is ₹20,000 crore, nearly three times larger. Brokerage firm IIFL called this a significant jump. However, IIFL also noted that the ₹300 crore cap per MFI means the scheme will not move the needle much for large MFIs, since their loan books are far bigger than what this cap can support.
Who could gain, and who could lose?
Morgan Stanley said the scheme looks positive for MFIs broadly, since many of them are still recovering from stress in their loan books and trying to grow again. Easier and cheaper access to bank funding helps them restart lending.
But IIFL flagged a potential downside for well-funded large lenders. If smaller MFIs now get easier access to credit, they could reclaim market share that bigger players like CreditAccess Grameen and L&T Finance had quietly gained during the tough period. Similarly, companies like Northern Arc and MAS Financial Services, which earn by lending to these smaller MFIs, may face margin pressure if MFIs start getting cheaper funds directly from banks instead.
What is still unclear?
Morgan Stanley raised three open questions about the scheme that need official clarification. First, whether diversified NBFCs that lend partly to microfinance customers will qualify. Second, whether the lending rate cap is applied to the lower or upper end of the EBLR/MCLR-plus-2% band. Third, whether the ₹300 crore cap per MFI applies across all lenders together or per individual lending institution. These details matter and could change how useful the scheme really is in practice.
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