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Microfinance Scheme Fails to Attract Banks
20 Sep
Summary
- Banks sanctioned Rs 8,500 crore, far below the Rs 20,000 crore target.
- Smaller MFIs received only Rs 300 crore, larger ones found little advantage.
- Banks remain cautious despite 80% default guarantee, citing creditworthiness concerns.
The Credit Guarantee Scheme for Microfinance Institutions (CGSMFI) 2.0, launched in March 2026, has struggled to gain momentum. Banks have sanctioned approximately Rs 8,500 crore, significantly short of the Rs 20,000 crore goal. Sources indicate that smaller MFIs secured only about Rs 300 crore, with small and medium lenders receiving Rs 1,800 crore collectively.
Larger institutions largely bypassed the scheme, finding it offered little advantage. Despite an 80% default guarantee, banks remain wary of lending to low-rated and smaller entities due to creditworthiness concerns. The scheme, extended to August 31, 2026, includes lending caps and a 0.5% guarantee fee, increasing costs.
Industry officials noted that larger MFIs found direct market borrowing more economical. The scheme's attractiveness was diminished for them by the passed-on guarantee fee and interest rate caps, which squeezed margins. The microfinance sector, previously under pressure from overleveraging, is now showing signs of recovery.
