The Union Cabinet on Wednesday approved the continuation of the Credit Guarantee Fund for Micro Units (CGFMU) for five years until March 31, 2031, with a corpus of ₹50 billion to facilitate loans worth ₹12.6 trillion under the Pradhan Mantri Mudra Yojana (PMMY). The scheme provides credit guarantee coverage to lending institutions through the National Credit Guarantee Trustee Company Ltd (NCGTC) against default risks on eligible loans, enabling collateral-free credit to micro enterprises.

The extension will cover loans sanctioned under PMMY during the 16th Finance Commission period, spanning FY27 to FY31, according to an official statement.

The Cabinet also approved a reduction in the annual guarantee fee for PMMY loans to 0.75% from 1%, while retaining the existing fee structure for self-help group (SHG) loans. SHGs will continue to pay 0.25% in the first year and 0.50% in subsequent years. The fund provides guarantee coverage for loans of up to ₹2 million extended to eligible micro enterprises under PMMY. It also covers overdrafts of up to ₹10,000 provided by banks under the Pradhan Mantri Jan Dhan Yojana and loans to SHGs with portfolio sizes ranging from ₹1 million to ₹2 million.

As of September 2026, lending institutions had sanctioned more than 603.6 million loans amounting to ₹43.34 trillion since the launch of PMMY, reflecting the scale of credit disbursement supported by the scheme.

Launched in January 2016, CGFMU has played a role in expanding access to formal credit for micro enterprises by providing lenders with protection against potential defaults. The government said continuation of the fund would support aspiring entrepreneurs, particularly those unable to access conventional banking finance, and facilitate the establishment and expansion of micro businesses.

The guarantee coverage will be linked to disbursement amounts for working capital facilities and outstanding amounts for term loans to reflect the actual risk exposure of lending institutions.