India approves $2.14 billion microfinance credit scheme

The finance ministry of India has approved a 200 billion rupee ($2.14 billion) credit guarantee scheme for microfinance firms to address mounting stress in the sector. The initiative, which went into effect on Friday and remains active through June 30, aims to bolster credit flow to small- and medium-sized microfinance institutions (MFIs) and restore lender confidence.

Under the scheme, the government-owned National Credit Guarantee Trustee Company (NCGTC) will provide guarantees for loans extended to MFIs. Participating lenders are required to cap interest rates at the external benchmark lending rate (EBLR) or 2% above the marginal cost of funds. In turn, MFIs must lend to their clients at a rate 1% below the six-month average lending rate. The guarantees cover 70% of disbursals to large MFIs, 75% to medium-sized MFIs, and 80% to smaller institutions.