IndiaPosted at: Nov 11 2026 4:37PM


Cabinet extends Mudra Credit Guarantee scheme till 2031, targets Rs 12.6 lakh cr in loans

New Delhi, Nov 11 (UNI) The union Cabinet on Wednesday approved a five-year extension of the Credit Guarantee Fund for Micro Units (CGFMU) until March 31, 2031, with a corpus of Rs 5,000 crore, paving the way for facilitating loans worth Rs 12.6 lakh crore under the Pradhan Mantri Mudra Yojana (PMMY) over the next five years.
The decision is aimed at strengthening collateral-free institutional lending to micro enterprises and encouraging banks and other financial institutions to extend credit to small entrepreneurs who often struggle to access formal financing because of inadequate security or lack of conventional collateral.
Announcing the Cabinet decision, union Information and Broadcasting Minister Ashwini Vaishnaw said the continuation of the scheme would provide credit guarantee coverage to lending institutions against the risk of default on loans extended to eligible micro enterprises. The guarantee mechanism is administered by the National Credit Guarantee Trustee Company Limited (NCGTC).
The extension will cover the entire period of the XVIth Finance Commission, from 2026-27 to 2030-31. The government expects the Rs 5,000-crore corpus to support the flow of institutional credit and facilitate PMMY loans amounting to Rs 12.6 lakh crore during this period.
Launched in January 2016, the Credit Guarantee Fund for Micro Units has emerged as an important component of the government's strategy to expand access to finance under the Mudra scheme.
According to government figures, more than 60.36 crore loans involving a cumulative amount of Rs 43.34 lakh crore had been sanctioned under PMMY by lending institutions since its launch in April 2015, as of September 2026.
Under the arrangement, credit guarantees are provided to lending institutions for loans of up to Rs 20 lakh extended to eligible micro enterprises under the Mudra scheme. The coverage also includes overdrafts of up to Rs 10,000 sanctioned by banks to account holders under the Pradhan Mantri Jan Dhan Yojana (PMJDY), besides loans to Self-Help Groups (SHGs) where the portfolio amount ranges between Rs 10 lakh and Rs 20 lakh.
A significant feature of the extended arrangement is the reduction in the annual guarantee fee payable by lending institutions for eligible Mudra loans. The fee will come down from the existing one per cent to 0.75 per cent, a move expected to lower the cost of credit guarantee support and encourage greater participation by banks and other lenders.
However, the fee structure for Self-Help Groups will remain unchanged. It will continue to be 0.25 per cent during the first year and 0.50 per cent in subsequent years.
The government has also rationalised the methodology for calculating guarantee coverage to bring it closer to the actual credit exposure of lending institutions. For working capital limits, the guarantee will be calculated on the basis of the amount disbursed, while in the case of term loans, it will be linked to the outstanding loan amount. The revised approach is intended to ensure that the guarantee corresponds more accurately to the actual risk borne by lenders.
The Pradhan Mantri Mudra Yojana was launched in April 2015 to provide institutional finance to micro and small businesses engaged in income-generating activities. Its central objective is to bring small entrepreneurs, particularly those operating outside the organised financial system, into the formal banking network by enabling them to obtain loans without furnishing collateral.
The scheme has been positioned as a major instrument for promoting entrepreneurship, self-employment and livelihood generation. By sharing a portion of the potential default risk through the credit guarantee mechanism, the government seeks to make lending to small and relatively vulnerable businesses more attractive to financial institutions.
The continuation of CGFMU is expected to provide greater confidence to banks and other lending agencies in financing micro enterprises, including businesses that may otherwise find it difficult to secure institutional loans because of their limited scale of operations or lack of conventional security.
With more than 60 crore loans already sanctioned under Mudra and a further Rs 12.6 lakh crore in credit expected to be facilitated over the next five years, the government is seeking to sustain the expansion of the micro-enterprise sector and strengthen its contribution to employment generation, entrepreneurship and economic activity. UNI SKA AAB
Tags: #Cabinet extends Mudra Credit Guarantee scheme till 2031# targets Rs 12.6 lakh cr in loans
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