Why The Government Expanded Support For Microfinance Institutions

Key Takeaways

1. On 11 th June, 2026 the Ministry of Finance has extended CGSMFI-2.0 up to August 31, 2026 and enhanced loan limit from Rs 300 cr to Rs 1000 cr for large NBFC-MFIs.
    
2. Launched on 20 th March 2026, CGSMFI-2.0 provides credit guarantees to banks from NCGTC on lending to MFIs. 

Which alterations did the Government implement on the MFS Credit Guarantee Scheme in June 2026? 

On June 11, 2026, the Ministry of Finance announced that the CGSMFI-2.0 was extended till August 31, 2026. 

The ministry also increased the maximum loan amount limit for the large-sized NBFC-MFIs and MFIs from 300 crore to 1,000 crore. 

The limits are, however, capped by an overall limit of 20% of the AUM of an institution. It is through the National Credit Guarantee Trustee Company Limited (NCGTC).

Why did the Government extend CGSMFI-2.0 and hike the loan limit? 

The ministry said the extension in validity and increase in maximum loan amount capped to Large Sized NBFC-MFIs.

MFIs is expected to result in better utilisation of the scheme and facilitate increased credit flow to the MFI sector.

What part has been used up to this date?

It was only June 11, 2006 and only Rs 770crores was approved under the scheme so there was Rs 19,230 crores left.

Both the extension and the higher cap are clearly driven by this underutilization. 

How will this benefit small borrowers and the clients of MFIs across India?

The scheme is of relevance to small borrowers as it will continue to make credit from microfinance accessible and relatively inexpensive. 

Below are the specific details on the guarantee coverage and expenses as notified by the Ministry of Finance under CGSMFI-2.0:

There is a cap of EBLR/MCLR plus 2% per annum on loans that MLIs may charge MFIs. 

In case of MFIs extending credit to micro-borrowers, the lending rate should be at least 1% lower than the average lending rate charged by the MFI on its loans in the previous six months. 

This interest rate cap safeguards the ultimate borrower. 

If MFIs can lend cheaper, all the approximately 6 crore live microfinance borrowers in India are expected to receive cheaper loans from their local agents. 

What say the experts, and is it working fast enough? 

The MFI sector has been in a crisis since 2014. Increased non-performing assets across the sector had begun rising from FY15, because of over-leveraging on small borrowers. 

To bring lender confidence back into play and re-open credit lines, a new scheme-CGSMFI-2.0-was launched. 

But only 770crore out of 20,000crore sanctioned by the banks after 3 months of launch proves the failure of the scheme from a lender's point of view. 

Conclusion

The revision by the Ministry of Finance, June 11, 2026, to CGSMFI-2.0 is action-oriented and has time-bound implications. 19,230 crore is un-deployed. The newly imposed ceiling of 1,000 crore of loan limits for the bigger MFIs, coupled with a deadline of August 31, provides an opportune period.