- Why in news
- On 10 June 2026 the Finance Ministry extended CGSMFI-2.0's validity to 31 August 2026 and raised the maximum loan for large NBFC-MFIs/MFIs from ₹300 crore to ₹1000 crore.
- What it is
- CGSMFI-2.0 is a central credit guarantee scheme launched on 20 March 2026. It gives guarantee cover through NCGTC to banks and financial institutions that lend to NBFC-MFIs and MFIs. These MFIs on-lend to small borrowers, so the scheme aims to keep credit flowing to the microfinance sector.
- Loan cap
- Maximum loan to large NBFC-MFIs/MFIs raised from ₹300 crore to ₹1000 crore, within an overall ceiling of 20% of AUM.
- Guarantee coverage
- Cover is 80% of the amount in default for small, 75% for medium and 70% for large NBFC-MFIs/MFIs.
- Guarantee fee
- The fee is 0.50% a year, on the sanctioned amount in the first year and on the outstanding amount after that.
- Implementing agency
- Guarantees are issued through NCGTC.
- Guarantee agency
- Guarantee cover is given through the National Credit Guarantee Trustee Company Limited (NCGTC) to banks and FIs lending to NBFC-MFIs and MFIs.
- Coverage rates
- The guarantee covers 80% of the amount in default for small, 75% for medium and 70% for large NBFC-MFIs/MFIs.
Don’t confuse with CGSMFI-2.0 vs Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE): CGSMFI-2.0 guarantees loans to MFIs through NCGTC; CGTMSE covers collateral-free loans to micro and small enterprises.
Don’t confuse with NBFC-MFI vs other MFIs: NBFC-MFIs are RBI-regulated non-bank finance companies; MFIs here also include other microfinance lenders. Both on-lend to small borrowers under the RBI definition of microfinance.
Schemes: 52 Prelims questions since 2013, 10 in Prelims 2026 alone. They test features, the period and who funds it. In Mains, 33 news-triggered questions, mostly GS3.
Why it matters
- Keeps funds flowing to MFIs, which lend to small borrowers who lack formal credit access.
- Restores credit flow to smaller MFIs, supporting financial inclusion of low-income borrowers.
Problems
- Guarantee cover may weaken lenders' screening, and sanctions so far (₹770 crore) are small against the ₹20,000 crore target.
- Underlying stress in the microfinance sector may persist, raising the risk of defaults and claims on the guarantee.
- The short validity window (till 30 June 2026) limits the scheme's reach.
Way forward
- Monitor defaults and borrower over-indebtedness, and extend the window if uptake stays low.
- Strengthen MFI risk assessment and borrower-level safeguards against over-indebtedness.
- 2020Mains GS2 · Q17Evaluate SHGs' role in microfinance for asset creation and women's empowerment
- 2013Mains GS2 · Q11Discuss legitimacy and accountability of SHGs and microfinance outfits
- 2021Mains GS2 · Q8Can microfinancing women SHGs break gender inequality, poverty, malnutrition cycle?
- 2015Mains GS2 · Q9Elucidate how the SHG-Bank Linkage Programme works as poverty alleviation and women empowerment tool.
- 2011Prelims Q83Which institution has highest share in agricultural credit: commercial, cooperative, RRB, MFIs
- 2011Prelims Q38Which microfinance services are provided: credit, savings, insurance, fund transfer
- 2026Prelims Q99Statements on NBFC deposits, registration, and DICGC insurance coverage
UPSC’s own questions that come close to this issue, from our Prelims and Mains banks.
Prelims practice · Statements
Ours, not from a UPSC paper
Consider the following statements:
- 1.Under the Credit Guarantee Scheme for Microfinance Institutions-2.0, guarantee cover is provided through the National Credit Guarantee Trustee Company Limited to banks and financial institutions that lend to NBFC-MFIs and MFIs.
- 2.The guarantee coverage under the scheme is 80% of the amount in default for small, 75% for medium and 70% for large NBFC-MFIs/MFIs.
- 3.The guarantee fee under the scheme is 0.50% a year, charged on the sanctioned amount throughout the loan tenure.
Which of the statements given above is/are correct?
True or false?
1 of 3
Statements the way Prelims prints them. Say first, then see the fact.
1.The scheme provides guarantee cover through NCGTC to banks and financial institutions that lend to NBFC-MFIs and MFIs.
True. Guarantee cover is routed through NCGTC to lenders of MFIs.
2.The guarantee covers 80% of the amount in default for small, 75% for medium and 70% for large NBFC-MFIs/MFIs.
True. Cover tapers with size: 80%, 75%, 70%.
3.The guarantee fee is 0.50% a year, charged on the sanctioned amount throughout the loan tenure.
False. It is on the sanctioned amount in year one and on the outstanding amount thereafter.
Written by us from the release, not by UPSC; checked by a second model.
Worth revising until Prelims 2028: most news questions come within two years of the event.