The Union Cabinet has approved a five-year extension of the Mudra loan scheme's credit guarantee support. The decision aims to improve access to collateral-free loans for micro enterprises.

The government has also approved a ₹5,000 crore corpus to support lending under the Pradhan Mantri Mudra Yojana.

The Credit Guarantee Fund for Micro Units (CGFMU) will now remain operational until March 31, 2031. The extension is expected to facilitate loans worth ₹12.6 trillion over the next five years. The scheme will cover loans extended between FY27 and FY31.

Mudra Loan Scheme to Support ₹12.6 Trillion Lending

According to the government's press release, the CGFMU provides credit guarantee coverage to lending institutions through the National Credit Guarantee Trustee Company Limited (NCGTC). This protects lenders against the risk of loan defaults.

Since the launch of PMMY, lending institutions have sanctioned more than 60.36 crore loans worth ₹43.34 lakh crore as of September 2026. Launched in January 2016, the CGFMU has played an important role in supporting the growth of Mudra loans across the country.

Key Highlights:

• The Cabinet approved a ₹5,000 crore corpus for the credit guarantee fund.
• The scheme is expected to facilitate ₹12.6 trillion in loans over five years.
• The guarantee fee for lenders has been reduced from 1% to 0.75% per annum.

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Guarantee Fee Reduced for Lending Institutions

The government has reduced the annual guarantee fee for lenders from 1% to 0.75%. However, the fee structure for loans extended to self-help groups (SHGs) will remain unchanged. For SHG loans, the guarantee fee will continue at 0.25% in the first year and 0.50% in subsequent years.

The fund provides guarantee coverage for loans of up to ₹20 lakh extended to eligible micro enterprises under PMMY. It also covers overdrafts of up to ₹10,000 offered by banks under accounts opened through the Pradhan Mantri Jan Dhan Yojana (PMJDY).

Additionally, the scheme covers SHG loans with portfolio sizes ranging from ₹10 lakh to ₹20 lakh. Guarantee coverage is linked to the amount disbursed for working capital limits and the outstanding amount for term loans.

The government said the continuation of the Mudra loan scheme would help aspiring entrepreneurs establish and expand businesses. By improving access to collateral-free credit, the initiative aims to support entrepreneurs who previously struggled to obtain loans through the formal banking system.