The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved the continuation of the Credit Guarantee Fund for Micro Units (CGFMU) for five years, until March 31, 2031. The Cabinet has also approved a corpus of ₹5,000 crore to support the scheme, which provides credit guarantee coverage to lending institutions against the risk of defaults on eligible loans.
The extension is expected to facilitate loans amounting to ₹12.6 lakh crore under the Pradhan Mantri Mudra Yojana (PMMY) over the next five years, helping aspiring entrepreneurs establish and expand their businesses.
Launched in January 2016, CGFMU operates through the National Credit Guarantee Trustee Company Limited (NCGTC). It provides guarantee support to lending institutions, enabling them to extend credit to eligible borrowers without requiring collateral.
The scheme has played a significant role in supporting the expansion of the PMMY. As of September 2026, lending institutions had sanctioned more than 60.36 crore loans amounting to ₹43.34 lakh crore since the launch of the Mudra scheme.
Under the continued framework, the fund will provide guarantee coverage for loans of up to ₹20 lakh extended to eligible micro enterprises under PMMY. It will also cover overdrafts of up to ₹10,000 provided by banks through accounts under the Pradhan Mantri Jan Dhan Yojana (PMJDY). Loans granted to self-help groups (SHGs) with a portfolio ranging from ₹10 lakh to ₹20 lakh will also be eligible for coverage.
The guarantee coverage will be linked to the actual credit exposure of lending institutions. For working capital facilities, it will be based on the amount disbursed, while for term loans, it will be linked to the outstanding loan amount.
The Cabinet-approved changes also include a reduction in the guarantee fee from 1 per cent per annum to 0.75 per cent per annum. The fee structure for SHG loans will remain unchanged, at 0.25 per cent for the first year and 0.50 per cent in subsequent years.
The extended scheme will apply to loans sanctioned under PMMY during the 16th Finance Commission period, covering the financial years 2026–27 to 2030–31.
Collateral-free lending under PMMY has enabled individuals and small business owners who previously faced difficulties accessing formal banking finance to obtain institutional credit and pursue entrepreneurial activities. The continuation of CGFMU is expected to strengthen this support by reducing the risk borne by lending institutions and encouraging them to extend loans to micro enterprises.
With the approved ₹5,000-crore corpus and the projected facilitation of ₹12.6 lakh crore in loans over five years, the scheme is expected to provide further momentum to grassroots entrepreneurship, self-employment and the growth of small businesses across the country.
Published: Wednesday, 11 November 2026 | 8:08 PM IST