The government has relaxed lending norms under the CGSMFI 2.0 scheme to improve the low uptake of its ₹20,000 crore credit facility. Banks must now direct a higher percentage of loans to smaller microfinance institutions, though industry players remain concerned about existing loan caps and strict rating requirements.
The National Credit Guarantee Trustee Company Ltd (NCGTC) has introduced key revisions to the Credit Guarantee Scheme for Microfinance Institutions (CGSMFI 2.0). Since its launch in March, the ₹20,000 crore scheme has seen limited participation. These new changes are designed to address bottlenecks and ensure that credit reaches smaller lenders more effectively before the scheme’s scheduled closure on August 31, 2026.
New Lending Mandates for Banks
To ensure a more equitable distribution of funds, the government has updated how banks allocate their portfolios. Banks are now required to set aside at least 15% of their total allocation specifically for small and mid-sized microfinance institutions (MFIs). This is a noticeable shift from earlier requirements of 5% and 10%, reflecting a push to provide liquidity to smaller players who often face more challenges in accessing bank credit compared to large-scale industry leaders.
Adjusted Loan Limits and Industry Concerns
The revised guidelines have also set specific caps based on the Assets Under Management (AUM) of the institutions. For NBFC-MFIs and other microfinance firms, the maximum loan amount is now limited to 20% of their AUM. Under these rules, small MFIs—those with less than ₹500 crore in AUM—can access up to ₹100 crore, medium MFIs with AUM between ₹500 crore and ₹2,000 crore are capped at ₹200 crore, and large MFIs can access up to ₹1,000 crore.
While these updates aim to simplify the process, the industry continues to raise concerns regarding these limits. Some market players feel the ₹200 crore cap for mid-sized institutions is restrictive, noting that similar previous schemes allowed for higher borrowing limits. There is ongoing discussion regarding increasing the limit for large MFIs to ₹1,500 crore to better align with the scale of their operations.
Challenges Beyond the Scheme
Beyond the loan caps, smaller microfinance institutions face significant hurdles in accessing capital. Many commercial banks require borrowers to hold an investment-grade credit rating, even though the loans are backed by a sovereign guarantee from the government. Smaller MFIs with AUM under ₹500 crore often struggle to secure these ratings, which limits their ability to fully utilize the scheme despite the availability of funds.
Investors should monitor the implementation of these changes as the August 31, 2026, deadline approaches. The ultimate success of the scheme will depend on whether these relaxed mandates help bridge the gap between bank liquidity and the operational needs of smaller MFIs. Future updates to look for include any further adjustments to the investment-grade rating requirements or potential extensions to the scheme’s timeline to allow for better absorption of the allocated funds.