Mudra loan guarantee extended to 2031 with Rs 5,000 crore corpus

The Union Cabinet on Wednesday, 11 November 2026, approved the continuation of the Credit Guarantee Fund for Micro Units (CGFMU) for five more years, until 2031, with a corpus of Rs 5,000 crore. The fund guarantees loans that banks and other lenders give to small businesses under the Pradhan Mantri Mudra Yojana (PMMY), and the government expects the new corpus to support Mudra loans worth Rs 12.6 lakh crore over the five years. The guarantee covers loans of up to Rs 20 lakh to eligible micro enterprises, and the Cabinet also reduced the guarantee fee, according to reports of the decision.

Mudra loans are the government-backed route to bank credit for micro enterprises, such as small shops, workshops and service units, many of which have little to offer as collateral. A credit guarantee fund reduces the risk for banks: if a guaranteed loan goes bad, the fund repays a share of the lender's loss.

The size of the new corpus compared with the loans it is meant to support shows how guarantee funds work. The government does not set aside the full value of the loans; it sets aside a smaller pool that covers expected losses, and that pool lets lenders extend many times its value in credit. Extending the fund for five years gives banks certainty that new Mudra loans will continue to be backed.

The lower guarantee fee matters to both lenders and borrowers. The fee is what a lender pays to have a loan covered, and it affects the total cost of lending. A lower fee makes it cheaper for banks to use the guarantee for small loans.

The decision was one of several the Cabinet took on 11 November to support small enterprises, including the extension of the Stand-Up India scheme for SC, ST and women entrepreneurs.

Peepals calculation: The Rs 5,000 crore corpus is meant to support Rs 12.6 lakh crore of loans, a ratio of about 252 to 1 (12,60,000 ÷ 5,000). Spread evenly over five years, the target equals about Rs 2.52 lakh crore of guaranteed Mudra lending a year (12.6 ÷ 5). If the fee falls from 1% to 0.75%, as one report says, the cost of covering each Rs 1 lakh of loan would drop from Rs 1,000 to Rs 750 a year, assuming the fee is charged on the loan amount. Our calculation from the reported figures.

Short-term: Banks and other lenders can keep giving Mudra loans with guarantee cover, now at a lower fee.

Long-term: If the Rs 12.6 lakh crore target is met, a large volume of credit will reach micro enterprises across the country over five years.

Who is affected: Micro entrepreneurs who borrow under Mudra, banks, non-bank lenders and microfinance institutions that lend under the scheme, and the NCGTC, which runs the fund.

What to watch next: The official notification setting out the exact end date in 2031 and the new fee structure.

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