New Delhi: The Expenditure Finance Committee (EFC) has approved an ₹8,000 crore credit guarantee scheme to support microfinance institutions, officials aware of the matter said, providing government backing to a sector that has been facing increased delinquencies and difficulty in raising funds.
The programme will be implemented outside the union budget framework; therefore, it will not form part of Sunday's budget announcement, they said. The guarantee scheme is aimed at incentivising banks to extend credit to MFIs, especially to small players that are facing a funding squeeze amid persistent asset quality stress and limited access to bank finance.
The microfinance industry had sought a credit guarantee package of ₹20,000 crore. The EFC worked out the plan after the Department of Financial Services forwarded the industry request to the Department of Expenditure.
"The scheme will be announced once it is cleared by the Cabinet," a senior official told ET. The relief will be provided through the National Credit Guarantee Trustee Company. The official said the programme will be kept out of the 2026-27 budget announcement so that it is implemented this financial year ending March 31.
The Centre previously had announced a Credit Guarantee Scheme for Microfinance Institutions during the pandemic in 2021, when the sector was reeling under extreme stress. The government had then set up a ₹7,500 crore fund to encourage bank lending to micro-lenders, from June 2021 to March 2022. The scheme provided banks a cover for up to 75% of the loan amount in case there was a default. As the scheme helped improve fund availability, average growth in the sector accelerated to 50%, before it again started showing signs of stress from 2024.
Medium and small micro lenders were the most affected and the sector badly wanted government backing amid the ongoing asset quality stress. "Although the microfinance sector has overcome the troubles of the past two years, it is unable to go forward due to want of funding support," said Jiji Mammen, executive director of Sa-Dhan, a self-regulator for the sector.
The programme will be implemented outside the union budget framework; therefore, it will not form part of Sunday's budget announcement, they said. The guarantee scheme is aimed at incentivising banks to extend credit to MFIs, especially to small players that are facing a funding squeeze amid persistent asset quality stress and limited access to bank finance.
The microfinance industry had sought a credit guarantee package of ₹20,000 crore. The EFC worked out the plan after the Department of Financial Services forwarded the industry request to the Department of Expenditure.
"The scheme will be announced once it is cleared by the Cabinet," a senior official told ET. The relief will be provided through the National Credit Guarantee Trustee Company. The official said the programme will be kept out of the 2026-27 budget announcement so that it is implemented this financial year ending March 31.
The Centre previously had announced a Credit Guarantee Scheme for Microfinance Institutions during the pandemic in 2021, when the sector was reeling under extreme stress. The government had then set up a ₹7,500 crore fund to encourage bank lending to micro-lenders, from June 2021 to March 2022. The scheme provided banks a cover for up to 75% of the loan amount in case there was a default. As the scheme helped improve fund availability, average growth in the sector accelerated to 50%, before it again started showing signs of stress from 2024.
Medium and small micro lenders were the most affected and the sector badly wanted government backing amid the ongoing asset quality stress. "Although the microfinance sector has overcome the troubles of the past two years, it is unable to go forward due to want of funding support," said Jiji Mammen, executive director of Sa-Dhan, a self-regulator for the sector.
