MFIN and Sa-Dhan have cited the success of the government’s 2021 Covid period scheme for MFIs, which provided 75% guarantee on funding extended by member lending institutions (MLIs) to NBFC-MFIs/MFIs for further on-lending to eligible small borrowers
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To encourage banks to step up lending to the non-banking finance company – microfinance institutions (NBFC-MFIs), MFI sector self-regulatory organisations (SROs) – MFIN and Sa-Dhan – have proposed to the Finance Ministry to formulate a credit guarantee scheme.
While MFIN has mooted a credit guarantee scheme of ₹15,000 crore to ₹20,000 crore, Sa-Dhan wants a guarantee scheme of a suitable size that will meet the liquidity needs of small and mid-sized NBFC-MFIs.
Banks tightened credit appraisal norms for NBFC-MFIs after the latter’s asset quality deteriorated due to a host of factors, including the June 2024 heat wave in some parts of the country, which affected income-generating activities of customers, inability of over-leveraged borrowers to repay, and resulted in rise in credit costs. As a result, funding from banks to NBFC-MFIs has come down.
Covid scheme
MFIN and Sa-Dhan have cited the success of the government’s 2021 Covid period scheme: the ₹7,500 crore Credit Guarantee Scheme for MFIs provided 75 per cent guarantee on funding extended by member lending institutions (MLIs) to NBFC-MFIs/MFIs for further on-lending to eligible small borrowers.
Alok Misra, CEO & Director, MFIN, said, “We have requested the government for a credit guarantee scheme. We highlighted that the 2021 scheme kickstarted a virtuous cycle, it had no fiscal implications. The entire money came back; nobody invoked the guarantees.”
Misra observed that MFIN is also working on meeting with the bankers. “So, both pull and push factors are working, and we are hopeful that in one to two months we will see a solution to the liquidity (tightness being faced by MFIs). We will also be able to show (to the banks) that despite falling disbursement, the recovery (from bad loans) is inching up,” the MFIN chief said.
‘Raising funds not easy’
Jiji Mammen, Executive Director & CEO, Sa-Dhan, noted that fund raising is a big challenge for small and mid-sized microfinance institutions.
“Lenders need some kind of comfort for lending. This comfort can be given in the form of a sovereign guarantee. This was done during the Covid time. Then, a guarantee fund of ₹7,500 crore was created. Based on this, banks extended credit to various MFIs. It should be appreciated that hardly any guarantee was invoked.
“Based on the good track record of the earlier guarantee fund, we have requested the government to create another fund so that NBFC-MFIs, which specialise in last-mile funding, get loans from Banks and grow their book,” Mammen said.
Published on August 12, 2025
