Union Cabinet Extends Credit Guarantee Fund for Micro Units Through 2031

“Indirect Tax I Indirect Tax Litigation I Customs & FTP I Central Licensing I Arbitration I Advisory”

Dated: 12.11.2026

Union Cabinet Extends Credit Guarantee Fund for Micro Units Through 2031

The Union Cabinet has approved the continuation of the Credit Guarantee Fund for Micro Units (CGFMU) for five more years, strengthening credit access for micro enterprises under the Pradhan Mantri Mudra Yojana (PMMY).

The decision extends the scheme through 31 March 2031 and authorizes a ₹5,000 crore corpus. The fund is expected to facilitate PMMY loans totaling ₹12.6 lakh crore, helping lending institutions extend credit while reducing their exposure to borrower-default risk.

What the Cabinet approval means

CGFMU provides credit guarantees to eligible lending institutions through the National Credit Guarantee Trustee Company Limited (NCGTC). Rather than lending directly to borrowers, the fund helps banks and other participating lenders manage the risk associated with qualifying small-ticket loans.

This guarantee mechanism is intended to make formal credit more accessible to micro businesses and underserved borrowers who may otherwise find it difficult to obtain financing without substantial collateral.

Coverage under the scheme

The fund supports guarantees for several categories of credit facilities:

Micro-enterprise loans: Loans of up to ₹20 lakh extended to eligible micro enterprises under PMMY.
Jan Dhan overdrafts: Bank overdrafts of up to ₹10,000 under Pradhan Mantri Jan Dhan Yojana accounts.
Self-Help Group lending: Loans to Self-Help Groups where the relevant portfolio ranges from ₹10 lakh to ₹20 lakh.

For working-capital limits, guarantee coverage is linked to the amount disbursed. For term-loan accounts, it is linked to the outstanding amount. This approach aligns the guarantee with the lending institution’s actual risk exposure.

Lower guarantee fee for lenders

The approval also reduces the guarantee fee for eligible lending institutions from 1% per year to 0.75% per year. The fee structure for Self-Help Groups remains unchanged: SHGs continue to pay 0.25% in the first year.

Lower guarantee costs can improve the economics of lending to micro enterprises and may encourage broader participation by lenders in eligible credit programmes.

Why the extension matters

CGFMU has operated since January 2016 and has served as a major support mechanism for the expansion of PMMY lending. As of September 2026, lending institutions had sanctioned more than 60.36 crore loans amounting to ₹43.34 lakh crore since the launch of the PM Mudra Scheme.

The five-year continuation is designed to sustain this credit flow. By sharing default risk with lenders, the fund supports formal financing for small businesses, self-employed individuals, and other eligible borrowers operating at the micro-enterprise level.

Expected impact on micro-credit access

The renewed fund can contribute to a stronger micro-credit ecosystem in several ways:

Greater lender confidence: Credit guarantees reduce the financial impact of defaults on participating institutions.
Support for small enterprises: Eligible businesses can access loans of up to ₹20 lakh under PMMY coverage.
More inclusive formal lending: The scheme includes low-value overdrafts and qualifying SHG portfolios alongside micro-enterprise loans.
Longer-term continuity: The extension to March 2031 gives lenders and borrowers a clearer multi-year framework for guaranteed lending.

A continuing role in financial inclusion

The extension of CGFMU reflects the government’s continued emphasis on expanding formal credit to micro units. With a ₹5,000 crore corpus expected to facilitate ₹12.6 lakh crore in PMMY loans, the scheme is positioned to remain an important risk-sharing mechanism for lenders and a key enabler of credit access for India’s smallest enterprises through 2031.

In case you face any issues related to Indirect Tax-Customs, GST, Foreign Trade Policy (FTP), Arbitration matters and Central Licensing and related advisory matters in India then please feel free to get in touch with SJ EXIM Services.

We offer Legal advice and litigation support in matters related to Indirect Tax-Customs, FTP, other Indirect Tax matters & Arbitration law, all sorts of Central licensing and related matters. Come and explore the new way of doing business with us!

We specialize in paralegal services, litigation support, tax and regulatory matters, delivering reliable, efficient, and result-oriented legal assistance.

Source: PIB for Union Cabinet

Disclaimer

Handy Download:

Press Release by PIBDownload

Connect with us for more-

@ Team S J EXIM SERVICES, New Delhi, IN

CP: Ms. Shubhra Jha, Founder

Tel: +91-11-4999 2707 I +91-9999005693

Web: www.sjexim.services

EMAIL: operations@sjexim.services I shubhra@sjexim.services

Facebook: www.facebook.com/sjeximservices

LinkedIn: https://www.linkedin.com/company/90794255/admin/feed/posts/