Credit Guarantee Fund for Micro Units
Also called: CGFMU · Topic: Rural Credit, Microfinance and Financial Inclusion · NCERT: Beyond NCERT
Meaning
The Credit Guarantee Fund for Micro Units (CGFMU) is a government-backed fund. It promises to repay banks and other lenders if small borrowers fail to repay their loans. It started in January 2016. It runs through the National Credit Guarantee Trustee Company Limited (NCGTC), the trustee body that manages the fund.
It covers three kinds of loans:
- collateral-free loans under the Pradhan Mantri Mudra Yojana (PMMY), up to ₹20 lakh since the Tarun Plus category of 2024;
- PMJDY overdrafts up to ₹10,000;
- loans to self-help groups (SHGs) with a portfolio between ₹10 lakh and ₹20 lakh.
The fund carries much of the lender's risk, so banks can lend to people who have no assets to pledge. In 2026 the Cabinet extended the fund up to 31 March 2031. It cut the guarantee fee from 1% to 0.75% a year and approved a corpus of ₹5,000 crore. The SHG fee stays at 0.25% in the first year and 0.50% after that.
Example
A woman in a small town wants to open a tailoring shop. She has no land or deposits to offer as security. A bank gives her a Mudra loan without collateral because CGFMU covers the bank if she defaults. With a ₹5,000 crore fund expected to back about ₹12.6 lakh crore of loans over five years (2026), each public rupee supports many rupees of bank lending.
Don't confuse with
- Pradhan Mantri Mudra Yojana (PMMY): PMMY is the scheme that gives the loans. CGFMU is the guarantee that protects lenders if those loans go bad.
- CGTMSE: a separate guarantee trust set up in 2000 for micro and small enterprises. Its coverage and fees are different from CGFMU's.