The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved the continuation of the Credit Guarantee Fund for Micro Units (CGFMU) for an additional five-year period until March 31, 2031. The scheme provides credit guarantee coverage to lending institutions through National Credit Guarantee Trustee Company Limited (NCGTC) against default risk for various micro-credit facilities.
The CGFMU scheme covers three specific credit facilities: loans extended to eligible micro enterprises under Pradhan Mantri Mudra Yojana (PMMY) up to ₹20 lakh, overdrafts up to ₹10,000 provided by banks under Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts, and loans granted to Self Help Groups (SHGs) where the portfolio ranges between ₹10 lakh to ₹20 lakh. The guarantee coverage is linked to the disbursement amount for working capital limits and outstanding amount for term loan accounts to reflect the actual risk exposure of lending institutions.
Significant changes include a reduction in guarantee fee from 1% per annum to 0.75% per annum for PMMY loans, while SHGs continue to pay a guarantee fee of 0.25% for the first year and 0.50% in subsequent years. The scheme will be applicable to all loans extended under PMMY during the XVIth Finance Commission Cycle from FY 2026-27 to FY 2030-31.
The approval includes a corpus of ₹5,000 crore which is expected to facilitate PMMY loans amounting to ₹12.6 lakh crore over the next five years. As of September 2026, more than 60.36 crore loans amounting to ₹43.34 lakh crore have been sanctioned by lending institutions since the launch of the PM Mudra Scheme in January 2016. The scheme has been instrumental in providing collateral-free loans to aspiring entrepreneurs who previously could not access formal banking system credit, creating a new generation of entrepreneurs across the country.