New Delhi, November 11: The Union Cabinet, chaired by Prime Minister Narendra Modi, on Wednesday approved the continuation of the Credit Guarantee Fund for Micro Units (CGFMU) for five years, up to 31 March 2031, and lowered the annual guarantee fee on Mudra loans from 1% to 0.75%.
The fund gives lending institutions guarantee cover against the risk of default on small loans and is operated through the National Credit Guarantee Trustee Company Limited (NCGTC). The Cabinet approved a corpus of ₹5,000 crore, which the government said will facilitate loans worth ₹12.6 lakh crore under the Pradhan Mantri Mudra Yojana (PMMY) over the next five years.
Loans covered
The guarantee covers loans of up to ₹20 lakh to eligible micro enterprises under PMMY, overdrafts of up to ₹10,000 in Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts, and Self Help Group (SHG) loans where the portfolio is between ₹10 lakh and ₹20 lakh.
It will apply to all PMMY loans during the Sixteenth Finance Commission cycle, from 2026-27 to 2030-31.
Lower fee, cover linked to exposure
The annual guarantee fee on Mudra loans has been reduced to 0.75% from 1%. The fee for SHG loans is unchanged at 0.25% in the first year and 0.50% in later years.
Cover will be linked to the disbursed amount for working capital limits and to the outstanding amount for term loans, so that it reflects lenders’ actual risk exposure, the government said.
Scale of the Mudra scheme
CGFMU was launched in January 2016. As of September 2026, lenders had sanctioned more than 60.36 crore loans worth ₹43.34 lakh crore since the PM Mudra Scheme began, according to the government.
The government said collateral-free Mudra loans have helped people who earlier could not access formal bank credit to start businesses, and that the extension is meant to encourage young entrepreneurs to set up and expand enterprises.
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