Context
Recently, the Union Cabinet has approved the continuation of the Credit Guarantee Fund for Micro Units (CGFMU) for an additional five years up to March 2031.
About Credit Guarantee Fund for Micro Units (CGFMU)
- Nature: A Trust Fund established by the Government of India and managed by the National Credit Guarantee Trustee Company Limited (NCGTC).
- Objective: To provide credit guarantee against defaults on eligible micro-loans extended by banks, NBFCs, MFIs and other financial intermediaries.
- Purpose: To encourage institutional credit to micro and small enterprises (MSEs), particularly without collateral and third-party guarantees.
- Target Beneficiaries: New and existing micro-units and enterprises, including eligible Joint Liability Groups (JLGs) and Self-Help Groups (SHGs).
- Administering Body: It operates through the National Credit Guarantee Trustee Company Limited (NCGTC), which is a wholly-owned company of the Government of India under the Ministry of Finance.
- Implementing Framework: Supports collateral-free lending under the Pradhan Mantri MUDRA Yojana (PMMY).
Salient Features of the Scheme
- Eligible Credit Facilities:
- Pradhan Mantri Mudra Yojana (PMMY) loans up to ₹20 lakh to eligible micro-enterprises.
- Pradhan Mantri Jan Dhan Yojana (PMJDY) overdrafts up to ₹10,000.
- SHG loans with a portfolio size of ₹10–20 lakh.
- Guarantee Coverage: Linked to the disbursement amount for working capital limits and the outstanding amount for term loans, reflecting the actual risk exposure of lending institutions.
- Guarantee Fee:
- PMMY: Reduced from 1% to 0.75% per annum.
- SHGs: Unchanged at 0.25% for the first year and 0.50% in subsequent years.
- Duration: Applicable to PMMY loans extended during the XVI Finance Commission cycle (FY 2026–27 to FY 2030–31).
Eligible and Ineligible Agricultural Activities
- Eligible: Allied agricultural activities such as pisciculture, beekeeping, poultry, livestock, dairy, fishery, food processing and agribusiness services.
- Not Eligible: Purely agricultural activities, crop loans and land improvement activities such as canals, irrigation and wells.
Implementation and Institutional Mechanism
- Eligible Lending Institutions: Banks, Micro Finance Institutions (MFIs), Non-Banking Financial Companies (NBFCs) and other financial intermediaries approved by the Fund.
- Registration: Eligible lending institutions register with NCGTC by submitting an undertaking and board resolution.
- Digital Platform: Guarantee applications, renewals, claims and settlements are processed through SURGE, NCGTC’s B2B online portal.
Impact and Significance
- Collateral-free loans under PMMY have fostered a new generation of entrepreneurs by expanding access to formal institutional credit.
- The extension of CGFMU is expected to facilitate loans worth ₹12.6 lakh crore over the next five years.
- The scheme will promote entrepreneurship by enabling aspiring business owners to establish and expand their enterprises.
| Important CTC from this Article: PM MUDRA YOJANA |
Q. With respect to the Credit Guarantee Fund for Micro Units (CGFMU) and the PM Mudra Yojana, consider the following statements:
I. The CGFMU was established primarily to provide credit guarantee coverage to large-scale corporate infrastructure projects.
II. The credit guarantee coverage to lending institutions under CGFMU is provided through the National Credit Guarantee Trustee Company Limited (NCGTC).
III. The Union Cabinet has approved the continuation of the CGFMU scheme up to March 2031 to further facilitate collateral-free loans.
How many of the statements given above are correct?
(a) Only one
(b) Only two
(c) All three
(d) None
Answer: (b) Only two
Explanation:
Statement I is incorrect: The CGFMU was explicitly launched in 2016 to provide credit guarantee coverage for micro units and grassroots entrepreneurs, not large-scale corporate infrastructure.
Statement II is correct: The guarantee coverage against default risk is managed and provided to lending institutions through the National Credit Guarantee Trustee Company Limited (NCGTC).
Statement III is correct: The Union Cabinet recently approved the continuation of the CGFMU for five years, extending its operational mandate to March 2031.