PIB TrackerCabinet continues Rs 5,000 crore micro-units guarantee fund
The Cabinet has continued the Credit Guarantee Fund for Micro Units to 31 March 2031 with a Rs 5,000 crore corpus, cutting the guarantee fee from 1 per cent to 0.75 per cent and expecting Rs 12.6 lakh crore of Mudra loans over five years.
What happened
- The Cabinet approved continuation of CGFMU for five years, up to 31 March 2031, applicable to PMMY loans in FY 2026-27 to FY 2030-31.
- NCGTC provides the guarantee to lending institutions; the approved corpus is Rs 5,000 crore.
- Covered credit: PMMY loans up to Rs 20 lakh, Rs 10,000 overdrafts in PMJDY accounts and SHG loans with portfolios of Rs 10 lakh to Rs 20 lakh.
- The guarantee fee falls from 1 per cent to 0.75 per cent a year; the SHG fee stays at 0.25 per cent in year one and 0.50 per cent after.
- The extension is expected to enable PMMY loans of Rs 12.6 lakh crore over five years; 60.36 crore loans worth Rs 43.34 lakh crore were sanctioned by September 2026.
For Prelims
- CGFMU: a credit guarantee fund launched in January 2016 and administered by NCGTC; it insures lending institutions against default on PMMY loans and reduces their credit risk.
- PMMY: launched on 8 April 2015 to give collateral-free loans of up to Rs 20 lakh to micro and small enterprises in manufacturing, trading, services and allied agriculture.
- Loan categories: Shishu (up to Rs 50,000), Kishor (up to Rs 5 lakh), Tarun (up to Rs 10 lakh) and Tarun Plus (up to Rs 20 lakh, for borrowers who repaid earlier Tarun loans).
- Guarantee fee: the PMMY fee falls from 1 per cent to 0.75 per cent a year; for SHG loans it stays at 0.25 per cent in the first year and 0.50 per cent after.
- Finance Commission cycle: the continuation covers loans in the Sixteenth Finance Commission cycle, FY 2026-27 to FY 2030-31.
- NCGTC: the trustee company behind several credit guarantee funds, including the Credit Guarantee Scheme for Startups.
- Jan Dhan overdraft: CGFMU also covers bank overdrafts of up to Rs 10,000 in PMJDY accounts.
- Scale of PMMY: 57.79 crore loans worth Rs 40.07 lakh crore on 27 March 2026, against 60.36 crore and Rs 43.34 lakh crore as of September 2026, according to PIB.
For UPSC: CGFMU continued to 31 March 2031 (NCGTC): corpus Rs 5,000 crore; guarantee fee cut from 1 per cent to 0.75 per cent; covers PMMY loans up to Rs 20 lakh.
What it is NOT: The release does not give the share of each loan covered by the guarantee, the number of claims paid since 2016, the default rate on PMMY loans or the fiscal cost beyond the Rs 5,000 crore corpus. It does not say how the corpus will be topped up if claims rise, whether the Rs 12.6 lakh crore is a target or a projection, or how many borrowers are new to formal credit. The split among Shishu, Kishor and Tarun loans is not given.
For Mains
Syllabus: GS3.2 · GS3.1 · Linkage L1
Anchor
Micro enterprises seldom have collateral, so banks price the risk high or decline. A guarantee fund moves part of that default risk to a public trust and widens who can borrow.
Substantiation (data)
CGFMU has run since January 2016 and now continues to 31 March 2031 with a Rs 5,000 crore corpus. PMMY has sanctioned over 60.36 crore loans worth Rs 43.34 lakh crore, and the extension is meant to support Rs 12.6 lakh crore more.
Position
Linking cover to disbursed or outstanding amounts ties the guarantee to real exposure, and the lower fee of 0.75 per cent reduces the cost of lending to the smallest borrowers.
Counterpoint
Guarantees can weaken lender screening if banks assume the fund will pay. Average sanctioned loans of about Rs 71,800 are small, and the release shows no data on claims, defaults or borrowers new to formal credit.
Way forward
Publish claim and recovery data every year, tie guarantee fees to lenders' loss records, track first-time borrowers and enterprise survival, and link corpus top-ups to audited claims.
Conclusion
The extension keeps a working backstop in place. It should be judged by the borrowers it brings in, and not by the Rs 12.6 lakh crore of sanctions alone.
Deploys into: Credit guarantee and financial inclusion · Micro and small enterprise finance · Public sector bank lending risk · Finance Commission cycle and scheme continuation
Cabinet · 2026-11-11 · PRID 2334976 · PIB source ↗