Cabinet extends Mudra loan guarantee fund to 2031, cuts guarantee fee to 0.75%

The Union Cabinet on 11 November 2026 approved the continuation of the Credit Guarantee Fund for Micro Units (CGFMU) for five years, up to 31 March 2031, and cut its annual guarantee fee from 1% to 0.75%, according to a Ministry of Finance release. The fund guarantees collateral-free loans given under the Pradhan Mantri Mudra Yojana (PMMY). The Cabinet approved a corpus of Rs 5,000 crore, which the government says will enable PMMY loans of Rs 12.6 lakh crore over the next five years.

What Happened

The CGFMU protects lending institutions against default by borrowers. It is run through the National Credit Guarantee Trustee Company Limited (NCGTC). A credit guarantee means the fund covers part of a lender's loss if a borrower does not repay, which makes lenders more willing to lend without collateral.

According to the release, the fund guarantees three kinds of credit:

• loans of up to Rs 20 lakh to eligible micro enterprises under PMMY;
• overdrafts of up to Rs 10,000 given by banks on Pradhan Mantri Jan Dhan Yojana accounts;
• loans to self-help groups (SHGs) where the portfolio is between Rs 10 lakh and Rs 20 lakh.

The guarantee fee falls from 1% a year to 0.75% a year. For SHG loans there is no change: the fee stays at 0.25% for the first year and 0.50% in later years. Guarantee cover will be linked to the amount disbursed for working capital limits and to the amount outstanding for term loans. The scheme applies to all PMMY loans given from 2026-27 to 2030-31.

The release says that, as of September 2026, more than 60.36 crore loans worth Rs 43.34 lakh crore had been sanctioned since the Mudra scheme began. The CGFMU was launched in January 2016.

What It Means

Small business owners and SHGs can continue to seek collateral-free Mudra loans backed by this guarantee until March 2031. The lower fee reduces the cost that lenders pay for the guarantee; the release does not say whether lenders will pass this on to borrowers.

A borrower with a complaint about a bank's handling of a Mudra loan can approach the bank and then the RBI's complaint portal at https://cms.rbi.org.in.

Source: PIB press release