Cabinet Extends Mudra Credit Guarantee Scheme Till 2031 With ₹5,000 Crore Corpus

In a major boost to grassroots entrepreneurship and institutional credit expansion, the Union Cabinet, chaired by Prime Minister Narendra Modi, approved the continuation of the Credit Guarantee Fund for Micro Units (CGFMU) for a five-year period ending March 31, 2031. The government approved an outlay of ₹5,000 crore for the fund's corpus, which is projected to catalyze ₹12.6 lakh crore in lending under the flagship Pradhan Mantri Mudra Yojana (PMMY).

The scheme operates during the 16th Finance Commission cycle (FY2026-27 to FY2030-31) and provides default-risk coverage to scheduled commercial banks, regional rural banks, non-banking financial companies (NBFCs), and microfinance institutions through the National Credit Guarantee Trustee Company Limited (NCGTC).

Key Structural Adjustments and Coverage Limits:

• Higher Loan Ceilings: Guarantee cover is extended to eligible micro-enterprises availing PMMY loans of up to ₹20 lakh.
• Financial Inclusion Overdrafts: Coverage extends to overdraft facilities of up to ₹10,000 granted under Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts.
• Support for Self-Help Groups: Credit facilities between ₹10 lakh and ₹20 lakh extended to Self Help Groups (SHGs) remain covered under the scheme.
• Reduction in Guarantee Costs: The annual guarantee fee levied on lending institutions for standard PMMY loans has been reduced from 1.00% to 0.75% per annum. Fees for SHG loans remain unchanged at 0.25% in the first year and 0.50% in subsequent years.
• Risk-Aligned Coverage: The guarantee coverage will be directly linked to the disbursement amount for working capital limits and the outstanding balance for term loans to accurately mirror lenders' actual portfolio risk.

Implications for Lenders and Financial Markets

The reduction in the guarantee fee to 0.75% lowers the cost of funds and credit protection for lenders, encouraging public sector banks and small finance banks (SFBs) to ramp up credit delivery without straining their capital adequacy. Because CGFMU absorbs the credit default shock, financial institutions can aggressively pursue Priority Sector Lending (PSL) targets in micro-enterprises while containing potential non-performing asset (NPA) spikes.

Since its inception in January 2016, CGFMU has served as a critical pillar for micro-credit delivery across India. Official data shows that as of September 2026, lending institutions have sanctioned over 60.36 crore loans cumulatively valued at ₹43.34 lakh crore under the PM Mudra scheme. By insulating formal financiers from uncollateralized risk, the extended guarantee mechanism ensures consistent liquidity flow to tier-2, tier-3, and rural enterprise ecosystems through the decade.