Cabinet Extends the Mudra Loan Guarantee Fund (CGFMU) to 2031 and Cuts Its Fee
The Union Cabinet has continued the Credit Guarantee Fund for Micro Units, the guarantee behind Mudra loans, up to 31 March 2031 with a ₹5,000 crore corpus. It is not a grant: it protects lenders, and the guarantee fee falls from 1% to 0.75% a year.
The Union Cabinet, chaired by Prime Minister Narendra Modi, approved the continuation of the Credit Guarantee Fund for Micro Units (CGFMU) on 11 November 2026. According to the PIB release, the fund runs for another five years, up to 31 March 2031, with an approved corpus of ₹5,000 crore.
CGFMU is the guarantee that sits behind loans under the Pradhan Mantri Mudra Yojana (PMMY). If you run a micro business, or plan to start one with a Mudra loan, this decision is about whether lenders stay willing to lend to you without collateral. It is not a grant, and no money goes to borrowers directly. What it changes is the safety net under the lender, and that net now has a smaller fee and a fixed end date.
What the Cabinet decided
The headline points from the PIB release:
- Continuation for five years, up to 31 March 2031.
- A corpus of ₹5,000 crore, which the government says will enable PMMY loans of ₹12.6 lakh crore over the next five years.
- A lower guarantee fee: down from 1% a year to 0.75% a year.
- Coverage period: the scheme applies to all loans extended under PMMY during the 16th Finance Commission cycle, that is FY 2026-27 to FY 2030-31.
How CGFMU works
CGFMU does not lend. It protects the lender. Through the National Credit Guarantee Trustee Company Limited (NCGTC), the scheme gives lending institutions credit guarantee coverage against default risk. If an eligible borrower fails to repay, the guarantee covers part of the lender's loss.
That cover is what makes it easier for a bank to give a collateral-free loan to a first-time or small borrower. The PIB release credits collateral-free Mudra loans with creating a new generation of entrepreneurs who previously could not get loans from the formal banking system.
CGFMU was launched in January 2016. The government describes it as a major catalyst for the growth of PMMY lending. As of September 2026, lending institutions had sanctioned more than 60.36 crore loans worth ₹43.34 lakh crore since the Mudra scheme began.
Which loans the fund guarantees
According to the PIB release, the fund guarantees lending institutions for three kinds of credit:
- Mudra loans to micro enterprises: loans to eligible micro enterprises under PMMY of up to ₹20 lakh.
- Jan Dhan overdrafts: overdrafts of up to ₹10,000 provided by banks on Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts.
- Self Help Group loans: loans to Self Help Groups (SHGs) where the portfolio is between ₹10 lakh and ₹20 lakh.
How the cover is calculated
The release says guarantee coverage is linked to:
- the disbursement amount for working capital limits, and
- the outstanding amount for term loans.
The stated aim is to match the cover to the lender's actual risk exposure. Put simply, a working capital limit is covered on what has actually been paid out, and a term loan on what is still owed.
The guarantee fee is coming down
The guarantee fee drops from 1% a year to 0.75% a year. For Self Help Groups there is no change: they continue at 0.25% for the first year and 0.50% in later years.
The sources do not say how lenders will treat the lower fee in the pricing of individual loans. Ask your lender rather than assuming your rate will change.
What has not been announced
The sources we reviewed do not describe:
- any new application process for borrowers, or a new portal;
- any change to who is eligible for a Mudra loan;
- whether existing loans see any change to their terms.
Mudra loans are sanctioned by lending institutions, and the guarantee is between those institutions and NCGTC. As a borrower, you deal with your lender as before.
What this means for you
- Planning a Mudra loan? The guarantee behind PMMY loans now runs to 31 March 2031, covering loans extended from FY 2026-27 to FY 2030-31. Collateral-free Mudra lending is set to continue through that period.
- Know the ceiling. The guarantee covers eligible micro enterprise loans under PMMY of up to ₹20 lakh. If you need more than that, this scheme is not the route.
- Already have a working capital limit? The guarantee on it is linked to the amount disbursed, not the full limit. For a term loan, it is linked to what is still outstanding.
- Part of a Self Help Group? Your group's loans remain covered where the portfolio is between ₹10 lakh and ₹20 lakh, and the fee for SHGs is unchanged.
- Talk to your bank before you apply. Confirm the current Mudra terms, the documents it wants and whether the lower guarantee fee affects your rate. None of this has been set out in the announcement.
Sources: PIB release on the Cabinet decision; Angel One report; Sarkaritel report.
