Cabinet Extends Credit Guarantee Fund for Micro Units Till 2031
Key points
The Union Cabinet, chaired by Prime Minister Narendra Modi, approved the continuation of the Credit Guarantee Fund for Micro Units (CGFMU) for another five years, until 31 March 2031. The government has approved a corpus of ₹5,000 crore to facilitate loans worth approximately ₹12.6 lakh crore under the Pradhan Mantri Mudra Yojana (PMMY).
The decision, announced on 11 November 2026, aims to improve access to collateral-free credit, encourage entrepreneurship and strengthen India's micro-enterprise sector.
Key Highlights of the Cabinet Decision
Scheme: Credit Guarantee Fund for Micro Units (CGFMU)
Approved Corpus: ₹5,000 crore
Extension Period: Five years, until 31 March 2031
Expected Loan Support: ₹12.6 lakh crore
Maximum PMMY Loan Covered: ₹20 lakh
Guarantee Fee: Reduced from 1% to 0.75% annually
Implementing Agency: National Credit Guarantee Trustee Company Limited (NCGTC)
What Is the Credit Guarantee Fund for Micro Units?
The Credit Guarantee Fund for Micro Units was launched in January 2016 to support lending under the Pradhan Mantri Mudra Yojana.
The fund provides credit guarantees to banks and other eligible lending institutions against loan defaults. This reduces lending risks and encourages financial institutions to provide collateral-free loans to small businesses and entrepreneurs.
Major Features of the Extended Scheme
1. Credit Guarantee for Micro Enterprises
The scheme provides guarantee coverage for eligible micro-enterprise loans of up to ₹20 lakh under PMMY. It supports individuals seeking to establish or expand small businesses.
2. Support for Jan Dhan Account Holders
The fund also covers overdraft facilities of up to ₹10,000 provided through Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts.
3. Financial Support for Self-Help Groups
Loans to Self-Help Groups (SHGs) with eligible portfolios between ₹10 lakh and ₹20 lakh are covered under the guarantee mechanism.
4. Reduction in Guarantee Fees
The annual guarantee fee has been reduced from 1% to 0.75%, helping lower the cost of credit guarantees. For SHGs, the fee remains 0.25% in the first year and 0.50% in subsequent years.
Performance of Pradhan Mantri Mudra Yojana
According to government data, as of September 2026, lending institutions had sanctioned more than 60.36 crore loans worth ₹43.34 lakh crore since the launch of PMMY.
The continuation of CGFMU is expected to strengthen financial inclusion, support self-employment and encourage young entrepreneurs to establish new businesses.
Important Facts for Competitive Exams
Credit Guarantee Fund for Micro Units (CGFMU): Established in January 2016, the fund protects eligible lending institutions against default risks associated with micro-enterprise loans.
Pradhan Mantri Mudra Yojana (PMMY): Launched on 8 April 2015, PMMY facilitates institutional credit for eligible non-corporate, non-farm micro and small enterprises, including eligible allied activities.
National Credit Guarantee Trustee Company Limited (NCGTC): The institution manages credit guarantee arrangements that encourage financial institutions to extend loans to eligible borrowers.
Sixteenth Finance Commission Cycle: The extended CGFMU arrangement covers FY 2026–27 to FY 2030–31, ending on 31 March 2031.
Economic Significance: The scheme promotes financial inclusion, entrepreneurship, MSME development and employment generation by improving access to formal credit.
Conclusion
The Cabinet's decision to extend CGFMU until March 2031 represents an important step towards strengthening India's micro-enterprise ecosystem. With a ₹5,000 crore corpus expected to facilitate ₹12.6 lakh crore in Mudra loans, the scheme aims to expand collateral-free lending and support aspiring entrepreneurs across the country.
