Cabinet Extends MUDRA Credit Guarantee Scheme Until 2031 with ₹5,000 Crore Corpus

The Union Cabinet has approved the continuation of the Credit Guarantee Fund for Micro Units (CGFMU) for another five years, extending the scheme until March 31, 2031. The decision, announced on November 11, 2026, includes an approved corpus of ₹5,000 crore to facilitate loans worth approximately ₹12.6 lakh crore under the Pradhan Mantri MUDRA Yojana (PMMY) over the next five years.

The extension is intended to strengthen access to institutional credit for micro enterprises, small businesses and aspiring entrepreneurs by providing lending institutions with protection against loan defaults. The continued availability of credit guarantees is expected to encourage banks and other eligible financial institutions to extend loans to borrowers who may otherwise face difficulties obtaining formal financing due to inadequate collateral.

Credit Guarantee Framework for Micro Enterprises

The Credit Guarantee Fund for Micro Units was established in January 2016 to support the implementation of the Pradhan Mantri MUDRA Yojana. The fund provides credit guarantee coverage to participating lending institutions through the National Credit Guarantee Trustee Company Limited (NCGTC), helping mitigate the financial risks associated with lending to small businesses.

Unlike a direct loan or subsidy programme, the credit guarantee mechanism protects lending institutions against eligible defaults. This reduces the risks associated with collateral-free lending and supports the flow of institutional finance to micro enterprises operating across manufacturing, trading, services and other economic activities.

Under the extended framework, credit guarantee coverage will continue to be available for eligible microenterprise loans of up to ₹20 lakh sanctioned under PMMY. The fund will also cover overdraft facilities of up to ₹10,000 provided through Pradhan Mantri Jan Dhan Yojana accounts and eligible loans to Self-Help Groups with portfolios ranging from ₹10 lakh to ₹20 lakh.

These provisions are intended to support different categories of small borrowers, including individual entrepreneurs, microbusiness operators and members of community-based financial groups.

Government Reduces Annual Guarantee Fee to 0.75%

An important feature of the extended scheme is the reduction in the annual credit guarantee fee from 1% to 0.75%. The revised fee is intended to reduce the cost of guarantee protection under the programme and encourage greater participation by eligible lending institutions.

The government has also refined the method used to determine guarantee coverage. For working capital facilities, the guarantee will be linked to the amount disbursed, while for term loans, it will be calculated on the outstanding loan amount. This approach is intended to align the guarantee mechanism more closely with the actual credit exposure of participating lenders.

For Self-Help Group loans, the existing guarantee fee structure will remain unchanged. The applicable fee will continue at 0.25% during the first year and 0.50% in subsequent years.

The revised framework is designed to improve the effectiveness of the credit guarantee mechanism while supporting continued access to institutional financing for smaller borrowers.

MUDRA Scheme Has Sanctioned Over 60.36 Crore Loans

The Pradhan Mantri MUDRA Yojana has emerged as a major institutional financing programme for India’s microenterprise sector since its launch in 2015.

According to government figures, lending institutions had sanctioned more than 60.36 crore loans amounting to ₹43.34 lakh crore under PMMY as of September 2026. The programme has supported access to formal credit for small business owners, self-employed individuals and entrepreneurs operating in sectors that often face difficulties obtaining conventional bank financing.

The Credit Guarantee Fund for Micro Units has supported this expansion by enabling financial institutions to provide collateral-free loans while maintaining a degree of protection against default risks.

The government’s decision to continue the guarantee mechanism until 2031 is expected to support the next phase of credit expansion, with approximately ₹12.6 lakh crore in MUDRA loans projected to be facilitated during the five-year period.

Strengthening the Role of Public Sector Banks

Public sector banks are among the important lending institutions participating in the Pradhan Mantri MUDRA Yojana. The continuation of the credit guarantee framework provides additional support for their lending activities in the microenterprise segment.

By reducing the financial risks associated with eligible loans, the guarantee mechanism can encourage banks to extend financing to new enterprises and businesses seeking working capital or funds for expansion. This is particularly relevant in smaller towns, rural markets and emerging commercial centres where access to conventional collateral-backed financing may be limited.

The reduction in guarantee fees and the revised risk-exposure methodology are also intended to improve the operational framework within which banks and other participating institutions provide credit to micro enterprises.

The programme supports the broader objective of expanding formal financial services and encouraging enterprise development through institutional lending rather than dependence on informal sources of finance.

Supporting Entrepreneurship and Employment Generation

Micro enterprises form an important part of India’s economic structure, contributing to local manufacturing, services, retail trade and self-employment. Access to affordable and timely institutional finance can help these businesses invest in equipment, purchase raw materials, strengthen working capital and expand their operations.

The continuation of the MUDRA credit guarantee framework is expected to support aspiring entrepreneurs seeking to establish new businesses, as well as existing enterprises planning to expand their activities.

By facilitating access to collateral-free loans, the programme seeks to address one of the principal challenges faced by small entrepreneurs: the difficulty of obtaining institutional credit without substantial assets to pledge as security.

The government expects the extended guarantee mechanism to strengthen grassroots entrepreneurship and contribute to economic activity across both rural and urban India.

Five-Year Extension Covers FY2026–27 to FY2030–31

The extended Credit Guarantee Fund for Micro Units will apply to eligible loans extended under the Pradhan Mantri MUDRA Yojana during the 16th Finance Commission cycle, covering the financial years 2026–27 to 2030–31.

With an approved corpus of ₹5,000 crore and a projected ₹12.6 lakh crore in loans to be facilitated over five years, the scheme will remain an important component of India’s institutional credit support framework for micro enterprises.

The Cabinet’s decision provides continuity to the credit guarantee mechanism while introducing changes intended to improve its effectiveness. Its implementation will depend on the participation of lending institutions, the demand for eligible loans and the continued development of India’s microenterprise sector.

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