Credit Guarantee Fund for Micro Units (CGFMU)

Syllabus: GS2/Governance; GS3/Economy

Context

• The Union Cabinet has approved the continuation of the Credit Guarantee Fund for Micro Units (CGFMU) for five years up to March 2031.

About

• The scheme provides credit guarantee coverage to the Lending Institutions through National Credit Guarantee Trustee Company Limited (NCGTC) against default risk.
• CGFMU was launched in 2016 and has acted as a major catalyst in enabling the growth of Pradhan Mantri MUDRA Yojana (PMMY) loans in the country.

Salient features of the Scheme:

• The fund provides guarantee to Lending Institutions (LIs) for the following credit facilities:
  • Loans extended to eligible micro enterprises under Pradhan Mantri Mudra Yojana (PMMY) upto Rs.20 lakh;
  • Overdraft of upto Rs.10,000 provided by banks under Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts; and
  • Loans granted to Self Help Group (SHG) where the portfolio is between Rs.10 lakh to Rs.20 lakh.
• Guarantee Fee: Decrease in guarantee fee from @1% p.a. to @ 0.75% p.a. No change for SHG; continue to pay a guarantee fee of 0.25% for the first year and 0.50% in subsequent years.
• Duration: The Scheme would be applicable to all loans extended under PMMY during the FY 2026-27 to FY 2030-31.

Significance:

• Collateral free loans under Pradhan Mantri Mudra Yojana has created a whole new generation of entrepreneurs who previously could not avail loans from the formal banking system.
• The extension of CGFMU scheme will enable loans of Rs.12.6 lakh crore over next 5 years
• The scheme will act as a catalyst to young aspiring entrepreneurs to set up and grow their business.

Source: TH