Cabinet Clears Rs 5,000 Crore CGFMU Corpus for Mudra Loans

The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved five more years for the Credit Guarantee Fund for Micro Units (CGFMU), taking it up to 31 March 2031. The fund gets a corpus of Rs 5,000 crore, which the Ministry of Finance expects to support Mudra lending of Rs 12.6 lakh crore over the period.

What the fund does

CGFMU is not a lending scheme. It is a guarantee: it shields a bank or other lending institution against the risk that a tiny borrower defaults, and it does so through the National Credit Guarantee Trustee Company Limited (NCGTC). With that shield in place, a lender can hand out a collateral-free loan it would otherwise refuse.

What the guarantee covers

• Loans to eligible micro enterprises under the Pradhan Mantri Mudra Yojana (PMMY) up to Rs 20 lakh.
• Overdraft of up to Rs 10,000 allowed by banks on Pradhan Mantri Jan Dhan Yojana accounts.
• Loans to a Self Help Group where the portfolio sits between Rs 10 lakh and Rs 20 lakh.

Fee and cover

The guarantee fee has been cut from 1 per cent a year to 0.75 per cent a year, which lowers the cost a lender passes on. Self Help Groups see no change: they keep paying 0.25 per cent in the first year and 0.50 per cent in the years after. Cover is tied to the amount actually disbursed in the case of a working capital limit, and to the amount outstanding in a term loan account, so the guarantee tracks the real risk a lender carries rather than a notional figure.

The Mudra record

Since the Pradhan Mantri Mudra Yojana began, lending institutions had sanctioned more than 60.36 crore loans worth Rs 43.34 lakh crore as on September 2026. CGFMU, which started in January 2016, is credited with being the main engine behind that spread. The renewed scheme will apply to every PMMY loan made during the Sixteenth Finance Commission cycle, that is from the financial year 2026-27 through the financial year 2030-31. The government argues that collateral-free credit has created an entirely new class of entrepreneurs who could never earlier knock on the door of a formal bank.