🔒 CGFMU
Credit Guarantee Fund for Micro Units including MUDRA, PMJDY OD, and SHG loans under NRLM/NULM
Overview
The Credit Guarantee Fund for Micro Units (CGFMU) is a critical safety net aimed at encouraging banks to lend to the smallest of businesses (Micro Units) without asking for collateral.
- Administered By: NCGTC (National Credit Guarantee Trustee Company).
- Launch Date: Operational w.e.f. 1st April 2020.
- Objective: To provide guarantee coverage for collateral-free loans extended to micro-entrepreneurs and Self Help Groups (SHGs).
Eligible Loans (Coverage)
The scheme covers a wide range of micro-credit facilities provided by Member Lending Institutions (MLIs):
-
MUDRA Loans: Guarantee is available for all three categories under PMMY:
- Shishu: Up to ₹50,000.
- Kishore: Above ₹50,000 to ₹5 Lakh.
- Tarun: Above ₹5 Lakh to ₹10 Lakh.
- Tarun Plus: Loans above ₹10 Lakh up to ₹20 Lakh (for growing units).
-
General Micro Loans: Any collateral-free loan up to ₹20 Lakh for:
- Manufacturing, Services, Retail Trade.
- Allied Agriculture Activities.
- Joint Liability Groups (JLGs).
-
PM Jan Dhan Yojana (PMJDY): Overdraft (OD) facility of up to ₹10,000 sanctioned to PMJDY account holders.
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Overview
The Credit Guarantee Fund for Micro Units (CGFMU) is a critical safety net aimed at encouraging banks to lend to the smallest of businesses (Micro Units) without asking for collateral.
- Administered By: NCGTC (National Credit Guarantee Trustee Company).
- Launch Date: Operational w.e.f. 1st April 2020.
- Objective: To provide guarantee coverage for collateral-free loans extended to micro-entrepreneurs and Self Help Groups (SHGs).
Eligible Loans (Coverage)
The scheme covers a wide range of micro-credit facilities provided by Member Lending Institutions (MLIs):
-
MUDRA Loans: Guarantee is available for all three categories under PMMY:
- Shishu: Up to ₹50,000.
- Kishore: Above ₹50,000 to ₹5 Lakh.
- Tarun: Above ₹5 Lakh to ₹10 Lakh.
- Tarun Plus: Loans above ₹10 Lakh up to ₹20 Lakh (for growing units).
-
General Micro Loans: Any collateral-free loan up to ₹20 Lakh for:
- Manufacturing, Services, Retail Trade.
- Allied Agriculture Activities.
- Joint Liability Groups (JLGs).
-
PM Jan Dhan Yojana (PMJDY): Overdraft (OD) facility of up to ₹10,000 sanctioned to PMJDY account holders.
-
Self Help Groups (SHGs): Collateral-free loans between ₹10 Lakh to ₹20 Lakh (under NRLM/NULM).
Guarantee Mechanism (How it Protects Banks)
Unlike other schemes where each loan is guaranteed individually, CGFMU operates on a Portfolio Basis. This means the guarantee covers the total pool of loans issued by the bank, not just one specific bad loan.
1. Extent of Guarantee Cover
If a loan turns into a Non-Performing Asset (NPA):
- First Loss: The bank (MLI) acts as the first line of defense and bears the first 3% of the amount in default.
- Remaining Loss: NCGTC covers 75% of the remaining loss.
- Maximum Cap: The total payout by NCGTC cannot exceed 15% of the bank's total loan portfolio (Crystallized Portfolio) in a year.
Exception for SHGs: For SHG loans, the "First Loss" and "Maximum Cap" rules do not apply. NCGTC provides a flat 75% coverage on the amount in default.
2. Tenure of Cover
The guarantee is valid for:
- Base Year (Year of loan disbursement).
- Plus 3 Years.
- Plus 3 Additional Years (Total approx. 7 years).
Guarantee Fee (Cost)
Banks have to pay an annual fee to NCGTC to avail this guarantee.
| Category | Guarantee Fee Rate (p.a.) |
|---|---|
| Standard Rate | 1% + Risk Premium (based on NPA levels). |
| Aspirational Districts | 0.50% (Concessional rate for 124 districts). |
| SHGs | 0.25% (1st Year) -> 0.50% (Subsequent Years). |
- Payment Due: The fee is calculated on the outstanding loan balance as of 1st April and must be paid within 16 days (beginning of the quarter).
Claim Settlement
When does the bank get the money?
- Trigger: The bank can file a claim if the account remains NPA for 6 months ("Amount in Default").
- Payout: NCGTC settles the claim within 60 Days of lodgement.
Summary Comparison: CGTMSE vs CGFMU
It is easy to confuse the two major guarantee schemes. Here is the detailed difference:
| Feature | CGTMSE (for MSEs) | CGFMU (for Micro/MUDRA) |
|---|---|---|
| Managing Agency | CGTMSE Trust (Ministry of MSME & SIDBI) | NCGTC (Ministry of Finance) |
| Target Audience | MSEs (Micro & Small Enterprises) | Micro Units, SHGs, MUDRA |
| Max Loan Amount | Up to ₹10 Crore | Up to ₹20 Lakh |
| Guarantee Mechanism | Individual Loan Basis (Each loan guaranteed) | Portfolio Basis (Pool of loans guaranteed) |
| First Loss (FLDG) | None (Trust covers from ₹0) | 3% borne by Bank (MLI) |
| Guarantee Cover % | 75% to 85% (Higher for Women/ZED/Micro) | 75% Flat (of the default amount after 3% FLDG) |
| Claim Lock-in | 18 Months (9 months for loans ≤ ₹10 Lakh) | None (Claim after 6 months NPA) |
| Portfolio Cap | Not Applicable (Unlimited) | Capped at 15% of Portfolio/Year |
Summary Cheat Sheet
| Concept / Topic | Key Details / Explanation |
|---|---|
| Objective | Provide guarantee coverage for collateral-free loans to micro-units. |
| Trust Name | CGFMU (Credit Guarantee Fund for Micro Units) managed by NCGTC. |
| Eligible Loans | All MUDRA loans (Shishu, Kishor, Tarun, Tarun Plus), PMJDY OD, and SHG loans. |
| Max Loan Amount | Up to ₹20 Lakh (Tarun Plus & General Micro Loans). |
| Guarantee Mechanism | Portfolio Basis (Covers the pool of loans, not individual accounts). |
| First Loss Default | 3% of the amount in default is borne by the Bank (MLI). |
| NCGTC Coverage | 75% of the remaining loss (after First Loss). |
| Portfolio Cap | Max payout capped at 15% of the total portfolio per year. |
| SHG Exception | For SHGs, there is No First Loss and No Portfolio Cap. Cover is flat 75%. |
| Claim Timeline | Paid within 60 days after account is NPA for 6 months. |
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