Mudra Loan Guarantee Extended Till 2031, Fee Cut to 0.75%: What Changes for Micro Businesses
The Union Cabinet extended the Credit Guarantee Fund for Micro Units (CGFMU) for five more years, till 31 March 2031, with a corpus of ₹5,000 crore. It is expected to support loans worth about ₹12.6 lakh crore under the Pradhan Mantri Mudra Yojana (PMMY).
The annual guarantee fee has been cut from 1% to 0.75%, so lenders face lower costs on Mudra loans. For loans to Self Help Groups (SHGs), the fee stays at 0.25% in the first year and 0.50% after that.
The revised fund covers Mudra loans up to ₹20 lakh, overdrafts up to ₹10,000 given under the Pradhan Mantri Jan Dhan Yojana (PMJDY), and SHG loans between ₹10 lakh and ₹20 lakh.
Guarantee cover will now be linked to the amount actually disbursed for working capital loans and the outstanding amount for term loans, to match the real risk the lender carries.
The revised scheme applies to PMMY loans given from FY 2026-27 to FY 2030-31. The guarantee is run by the National Credit Guarantee Trustee Company (NCGTC).
As of September 2026, more than 60.36 crore loans worth ₹43.34 lakh crore had been sanctioned under PMMY since its launch.
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 (loans without pledging property) from banks and other lenders. It is meant for non-corporate, non-farm small and micro enterprises such as a tailoring shop, a tea stall, a small repair workshop, a beauty parlour or a dairy unit. Loans are given in four categories: Shishu, Kishore, Tarun and Tarun Plus, up to a maximum of ₹20 lakh. MUDRA itself does not lend to people; banks, NBFCs and microfinance institutions give the loans.
Mudra loans are collateral-free, so lenders depend on the CGFMU guarantee to feel safe. By extending the fund till 2031 and cutting its fee from 1% to 0.75%, the government lowers the cost of every Mudra loan for lenders. This is meant to keep credit flowing to micro businesses, including the new Tarun Plus loans of up to ₹20 lakh.
National Credit Guarantee Trustee Company Limited (NCGTC)
The National Credit Guarantee Trustee Company Limited (NCGTC) is a government-owned company that manages India's main credit guarantee funds. A credit guarantee is a promise to a lender that, if a borrower fails to repay, the fund will pay a large share of the loss. NCGTC is the trustee of the CGFMU, which guarantees Mudra loans. It does not lend money itself; it only shares the lender's risk.
The Mudra guarantee changes approved by the Cabinet are carried out through NCGTC. A smaller fee and a cover that tracks real exposure make the guarantee cheaper and fairer, which encourages lenders to keep giving collateral-free loans to micro units.
MSME Sector: Definition, Classification, and Economic Significance
Micro, Small and Medium Enterprises (MSMEs) are businesses grouped by size, based on two tests: how much they have invested in plant, machinery or equipment, and their yearly turnover. Mudra loans are aimed at the smallest group, micro enterprises. The MSME definition is set under the MSMED Act, 2006, and was last revised from 1 April 2025.
Most Mudra borrowers are the tiniest micro enterprises: shops, workshops and home units. A cheaper, longer guarantee keeps formal credit open for this segment, which forms the base of India's MSME sector.
- CGFMU extended till 31 March 2031, approved by the Union Cabinet on 11 November 2026
- Corpus: ₹5,000 crore; expected to support loans worth about ₹12.6 lakh crore
- Guarantee fee cut from 1% to 0.75% a year; SHG fee unchanged at 0.25% (year 1) and 0.50% (later years)
- Coverage: PMMY loans up to ₹20 lakh, PMJDY overdrafts up to ₹10,000, SHG loans of ₹10 lakh to ₹20 lakh
- Applies to PMMY loans from FY 2026-27 to FY 2030-31
- CGFMU approved in January 2016, covering loans from 8 April 2015; trustee: NCGTC
- PMMY totals: over 60.36 crore loans worth ₹43.34 lakh crore (as of September 2026)
- PMMY launched 8 April 2015; maximum loan ₹20 lakh (Tarun Plus, since October 2024)