Credit Guarantee Funds for Mudra and Stand-Up India Loans Extended Till March 2031
The Union Cabinet approved the continuation of two credit guarantee funds for small borrowers till 31 March 2031: the Credit Guarantee Fund for Micro Units (CGFMU), which covers Mudra loans, and the credit guarantee fund for Stand-Up India loans.
A credit guarantee is a promise to the bank that if a borrower cannot repay, the fund will pay back a large part of the loss. This makes banks more willing to lend without asking for collateral (property or gold kept as security).
CGFMU continues with a corpus (a pool of money) of ₹5,000 crore and gives guarantee cover to lenders for loans under the Pradhan Mantri Mudra Yojana. It is run by the National Credit Guarantee Trustee Company (NCGTC).
The Stand-Up India Scheme was extended for five more years, with a credit guarantee corpus of ₹4,111 crore. It aims to reach at least 2.5 lakh more women, Scheduled Caste (SC) and Scheduled Tribe (ST) entrepreneurs.
For Stand-Up India loans, the guarantee covers 85% of the loan amount, with a standard guarantee fee of 0.5% and no extra risk premium. Since its launch in April 2016, the scheme has supported loans to more than 2.75 lakh women, SC and ST entrepreneurs.
Pradhan Mantri Mudra Yojana (PMMY)
The Pradhan Mantri Mudra Yojana (PMMY) is a central government scheme that helps very small businesses get collateral-free loans, that is, loans without pledging property or gold. It is meant for the "unfunded" small businesses, like tailors, vegetable sellers, small shopkeepers and repair workshops, which banks usually find too risky. Banks, small finance banks, NBFCs (Non-Banking Financial Companies) and microfinance institutions give the loans.
Mudra loans are collateral-free, so banks depend on the CGFMU to cover part of any loss. By continuing the fund till March 2031, the government ensures that banks keep giving Mudra loans, including the larger Tarun Plus loans up to ₹20 lakh.
Stand-Up India Scheme
Stand-Up India is a central government scheme that helps women, Scheduled Caste (SC) and Scheduled Tribe (ST) people start their own new business with a bank loan. It focuses on "greenfield" enterprises, which means businesses being set up for the first time. Each bank branch is expected to give such loans to at least one woman and at least one SC or ST borrower.
The five-year extension keeps this scheme alive for a new set of first-time entrepreneurs. The 85% guarantee and the low fee reduce the bank's risk, which is the main reason banks hesitate to lend to new business owners without a track record.
National Credit Guarantee Trustee Company Limited (NCGTC)
The National Credit Guarantee Trustee Company Limited (NCGTC) is a government-owned company that runs India's main credit guarantee funds. A credit guarantee fund works like insurance for a bank's loan: if the borrower fails to repay, the fund pays the bank a large part of the unpaid amount. NCGTC acts as a common "trustee", which means it manages these funds on behalf of the government.
Both funds extended today are managed by NCGTC. The extension means NCGTC will keep guaranteeing new Mudra and Stand-Up India loans till March 2031.
- Funds extended till: 31 March 2031
- CGFMU corpus: ₹5,000 crore; covers Mudra loans; trustee: NCGTC
- Stand-Up India guarantee corpus: ₹4,111 crore; guarantee cover 85% of loan; standard guarantee fee 0.5%
- Stand-Up India target: at least 2.5 lakh more women, SC and ST entrepreneurs in 5 years; more than 2.75 lakh supported since 2016
- Stand-Up India loans: ₹10 lakh to ₹1 crore, greenfield enterprises; launched 5 April 2016; nodal agency SIDBI
- PMMY launched: 8 April 2015; categories Shishu (up to ₹50,000), Kishore (up to ₹5 lakh), Tarun (up to ₹10 lakh), Tarun Plus (up to ₹20 lakh)
- NCGTC incorporated: 28 March 2014, under the Department of Financial Services