New Delhi, Nov 11 (KNS): In a major move aimed at strengthening financial support for small businesses and aspiring entrepreneurs, the Union Cabinet, chaired by Prime Minister Narendra Modi, on Wednesday approved the continuation of the Credit Guarantee Fund for Micro Units (CGFMU) for another five years, until March 31, 2031.

The Cabinet has approved a corpus of Rs 5,000 crore for the scheme, which is expected to facilitate loans worth Rs 12.6 lakh crore under the Pradhan Mantri Mudra Yojana (PMMY) over the next five years.

The decision is aimed at improving access to collateral-free credit for micro enterprises, particularly those that face difficulties in securing loans from formal banking institutions.

Under the scheme, lending institutions receive credit guarantee coverage against loan defaults through the National Credit Guarantee Trustee Company Limited (NCGTC), reducing their lending risks and encouraging greater financial support to small businesses.

According to official figures, more than 60.36 crore loans amounting to Rs 43.34 lakh crore have been sanctioned under the Mudra scheme since its launch. The CGFMU, introduced in January 2016, has played a key role in supporting the expansion of these loans across the country.

As part of the revised framework, the government has reduced the annual guarantee fee from 1 per cent to 0.75 per cent, a move expected to ease the cost of guarantee coverage for lending institutions.

However, the existing fee structure for Self Help Groups (SHGs) will remain unchanged at 0.Click Here To Follow Our WhatsApp Channel25 per cent for the first year and 0.50 per cent for subsequent years.

The scheme will provide guarantee coverage for loans of up to Rs 20 lakh extended to eligible micro enterprises under PMMY. It will also cover overdraft facilities of up to Rs 10,000 under Pradhan Mantri Jan Dhan Yojana accounts and loans to Self Help Groups with portfolios ranging from Rs 10 lakh to Rs 20 lakh.

The government has also revised the guarantee coverage mechanism to better reflect the actual risk exposure of lending institutions. Coverage for working capital facilities will be linked to the disbursement amount, while for term loans, it will be based on the outstanding loan amount.

The extended scheme will apply to all eligible Mudra loans sanctioned during the 16th Finance Commission cycle, covering the financial years 2026-27 to 2030-31.

The government said collateral-free lending under the Mudra scheme has helped create a new generation of entrepreneurs, including individuals who previously had limited access to institutional finance.

Officials said the continuation of the credit guarantee mechanism is expected to encourage banks and other lending institutions to extend greater financial support to small enterprises while helping young entrepreneurs establish and expand their businesses.

With the fresh approval, the Centre aims to sustain the growth of micro enterprises, promote self-employment and strengthen entrepreneurship by improving access to formal credit across the country. (KNS)