For Prelims: Credit guarantee, Collateral-free loan, Working capital, Term loan, Self-help group
For Mains: Economy: Financial inclusion and microenterprise credit; Economy: Credit guarantees and banking
5 facts for one-day exams
SSC, railway, police and teaching exams ask direct questions like these.
- CGFMU was launched in January 2016.
- The Union Cabinet approved CGFMU continuation until 31 March 2031.
- The approved CGFMU corpus is ₹5,000 crore.
- Eligible Mudra loans up to ₹20 lakh can receive CGFMU guarantee coverage.
- The general guarantee fee is reduced from 1% to 0.75% per annum.
The news
The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved the continuation of the Credit Guarantee Fund for Micro Units (CGFMU) for five years until 31 March 2031. The fund, which provides credit guarantee coverage to lending institutions through the National Credit Guarantee Trustee Company Limited (NCGTC) against default risk, will operate with a corpus of ₹5,000 crore. The decision is intended to facilitate loans of ₹12.6 lakh crore under the Pradhan Mantri Mudra Yojana (PMMY) over the next five years.
As of September 2026, lending institutions had sanctioned more than 60.36 crore PMMY loans amounting to ₹43.34 lakh crore since the scheme's launch. The CGFMU, launched in January 2016, covers loans extended to eligible micro enterprises under PMMY up to ₹20 lakh, overdrafts of up to ₹10,000 provided under Pradhan Mantri Jan Dhan Yojana accounts, and self-help group loans where the portfolio is between ₹10 lakh and ₹20 lakh. The general guarantee fee has been reduced from 1% per annum to 0.75% per annum, while the fee for self-help groups remains unchanged at 0.25% for the first year and 0.50% in subsequent years. The scheme applies to all PMMY loans extended during the Sixteenth Finance Commission cycle, from FY 2026-27 to FY 2030-31.
Why in the news?
The Union Cabinet approved the continuation of the Credit Guarantee Fund for Micro Units on 11 November 2026, extending its operation until 2031 with a ₹5,000 crore corpus to support collateral-free lending under the Pradhan Mantri Mudra Yojana.
What does the guarantee cover and how does it work?
The CGFMU provides lending institutions guarantee coverage against default risk on three categories of credit facilities: Mudra loans up to ₹20 lakh, Jan Dhan overdrafts up to ₹10,000, and self-help group loans with a portfolio between ₹10 lakh and ₹20 lakh. The guarantee coverage is linked to the disbursement amount for working capital limits and the outstanding amount for term loan accounts, reflecting the actual risk exposure of lenders. The reduced guarantee fee of 0.75% per annum is expected to lower the cost of credit protection for lending institutions.
What has the scheme achieved so far?
Since the launch of the PMMY, lending institutions have sanctioned over 60.36 crore loans worth ₹43.34 lakh crore as of September 2026. The government stated that collateral-free loans under the scheme have enabled a new generation of entrepreneurs who previously could not access formal banking credit. The extension of the CGFMU is expected to act as a catalyst for young aspiring entrepreneurs to set up and grow their businesses.
CGFMU guarantee fees
| Category | Fee |
|---|---|
| General: previous | 1% per annum |
| General: revised | 0.75% per annum |
| SHG: first year | 0.25% |
| SHG: subsequent years | 0.50% |
Facts and terms for exams
- Credit guarantee:
- A credit guarantee provides a lender protection against specified losses if a borrower defaults, subject to the guarantee's terms.
- Collateral-free loan:
- A collateral-free loan is a loan for which the borrower does not pledge an asset as security.
- Working capital:
- Working capital is the funding a business uses for its day-to-day operating requirements.
- Term loan:
- A term loan is credit repaid over an agreed period according to specified repayment terms.
- Self-help group:
- A self-help group is a small voluntary group whose members cooperate, often through savings and access to credit.
Why it matters for exams
Exams: UPSC, SSC, Bank
Syllabus: Economy: Financial inclusion and microenterprise credit; Economy: Credit guarantees and banking
Common mistake: Examiners may swap the ₹5,000 crore corpus with the ₹12.6 lakh crore loan target: the former is the corpus, while the latter is the amount of PMMY lending intended to be facilitated over five years.
Mains question
Credit guarantee funds reduce lender risk but also expose public resources to contingent liabilities. Critically evaluate the role of the Credit Guarantee Fund for Micro Units in expanding formal credit access to micro enterprises in India.
Stuck? Get it in one tap
CGFMU protects eligible lenders against the risk of borrowers failing to repay. The continued fund is intended to help lenders provide more collateral-free Mudra loans to small businesses. The approved corpus is ₹5,000 crore, while the intended loans over five years total ₹12.6 lakh crore.
- CGFMU was launched in January 2016.
- The Union Cabinet approved CGFMU continuation until 31 March 2031.
- The approved CGFMU corpus is ₹5,000 crore.
- Eligible Mudra loans up to ₹20 lakh can receive CGFMU guarantee coverage.
- The general guarantee fee is reduced from 1% to 0.75% per annum.
- Economy: Financial inclusion and microenterprise credit
- Economy: Credit guarantees and banking
Related concepts: Credit guarantee, Collateral-free loan, Working capital, Term loan
Practice questions
Pick an answer, then read the explanation.
- Q1Easy
Which institution provides CGFMU guarantee coverage to lending institutions against default risk?
Explanation: National Credit Guarantee Trustee Company Limited provides the guarantee coverage to lending institutions. The Union Cabinet approved continuation, the Finance Commission cycle defines the relevant period, and lending institutions receive the coverage.
- Q2Hard
Consider the following statements about the continued Credit Guarantee Fund for Micro Units:
- 1.Eligible Pradhan Mantri Mudra Yojana loans can be covered up to ₹20 lakh.
- 2.The general guarantee fee has increased from 1% to 0.75% per annum.
- 3.Guarantee coverage for term loan accounts is linked to the outstanding amount.
Which of the statements given above are correct?
Explanation: Statements 1 and 3 are correct: eligible Mudra loans have a ₹20 lakh ceiling, and term-loan coverage is linked to the outstanding amount. Statement 2 is incorrect because the general fee decreased, rather than increased, from 1% to 0.75%.
- Q3Medium
What corpus was approved in November 2026 for the continued Credit Guarantee Fund for Micro Units?
Explanation: The approved corpus is ₹5,000 crore. It is distinct from the ₹12.6 lakh crore in PMMY loans the guarantee framework is intended to facilitate over five years.
- Q4Medium
How does the Credit Guarantee Fund for Micro Units support eligible microenterprise lending?
Explanation: CGFMU provides guarantee coverage to lending institutions against default risk. Mudra loans remain loans, are described as collateral-free, and are extended by lending institutions to eligible borrowers.
Frequently asked questions
1. What does the Credit Guarantee Fund for Micro Units cover?
CGFMU provides lending institutions guarantee coverage against default risk on eligible Mudra loans, Jan Dhan overdrafts and self-help group loans.
2. Until when has CGFMU been continued?
The fund has been approved for continuation until 31 March 2031, covering PMMY loans extended during FY 2026-27 to FY 2030-31.
3. What is the new general guarantee fee under CGFMU?
The general guarantee fee is reduced from 1% to 0.75% per annum. Self-help group fees remain 0.25% in the first year and 0.50% in subsequent years.
4. How much PMMY lending is the extended CGFMU intended to facilitate?
The extended guarantee framework is intended to facilitate ₹12.6 lakh crore in PMMY loans over five years.
All sources
Original11 November 2026 · Read story- Merged11 November 2026 · Read story
Merged11 November 2026 · Read story
