Credit Guarantee Scheme: Loans facility for 25 lakh persons via MFIs; FM emphases on new loan disbursement over old loan repayments

Finance Minister Nirmala Sitharaman announced eight new relief measures today. Out of the eight relief measures, the Finance Minister also announced the Credit Guarantee scheme. The scheme will facilitate loans to 25 lakh persons through Micro Finance Institutions (MFIs).

"The guarantee will be provided to Scheduled Commercial Banks for loans to new or existing NBFC-MFIs or MFIs for on-lending up to Rs 1.25 lakh to approx 25 lakh small borrowers," Sitharaman said.

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The interest rate on loans for banks to be capped at MCLR plus 2 per cent. Maximum loan tenure is 3 years, 80 per cent of assistance to be used by MFI for incremental lending, interest at least 2 per cent below maximum rate prescribed by RBI.
She asked to focus on new lending, not repayment of old loans. Loans to borrowers to be in line with extant RBI guidelines such as the number of lenders, borrower to be a member of JLG, ceiling on household income and debt.

"All borrowers, including defaulters up to 89 days, will be eligible, " the FM said.

Guarantee cover for funding provided by MLIs to MFIs/  NBFC-MFIs till March 31, 2022 or till guarantees for an amount of Rs 7,500 crore issued, whichever is earlier. Guarantee up to 75 per cent of default amount for up to 3 years through National Credit Guarantee Trustee Company (NCGTC). No guarantee fee will be charged by NCGTC.