The Union Cabinet has re-activated the credit guarantee which underpins every Mudra loan. The Credit Guarantee Fund for Micro Units (CGFMU) will be reconstituted with a corpus of \u20b95,000 crore and will cover all PMMY loans sanctioned from FY 2026-27 to FY 2030-31. The government anticipates this will facilitate approximately \u20b912.6 lakh crore of collateral free lending over the five year period. (Mudra Loan Guarantee)<\/p>\n
Two things are of significance for the entrepreneur. The annual guarantee fee on micro-enterprise loans is being reduced from 1% to 0.75%. Guarantee cover will also now track the lenders’ actual risk exposure. The net effect is lower guarantee costs and better aligned cover which gives banks, NBFCs and microfinance institutions more scope to say yes to small borrowers.<\/p>\n
The real story is what the credit can do. With Mudra loans going up to \u20b920 lakh, a first gen entrepreneur can actually go on to set up a real small factory rather than just a shop. The size of the loan is appropriate for a range of manufacturing units including building material units, food processing, garment job work, light fabrication and household chemicals. For MSMEs, manufacturers, investors and startups the renewal is effectively setting the financing climate for micro manufacturing right up to 2031.<\/p>\n