Credit Guarantee Fund Approved for MUDRA Loans

Union Cabinet on 6 January 2016 approved creation of a Credit Guarantee Fund for Micro Units Development Refinance Agency (MUDRA) loans.

The Fund is expected to guarantee more than 1 lakh crore rupees worth of loans to micro and small units in the first instance.

Main Highlights

  •  The Credit Guarantee Fund for MUDRA Units (CGFMU) has been established for guaranteeing loans sanctioned under Pradhan Mantri Mudra Yojana with effect from 8 April 2015.
  •  The Fund’s objective is to reduce the credit risk to Banks/NBFCs/MFIs/other financial intermediaries, who are Member Lending Institutions (MLIs).
  •  The Trustee of the Fund will be the National Credit Guarantee Trustee Company Ltd. (NCGTC Ltd.). NCGTC Ltd is a wholly-owned company of Government of India constituted in 2013 under the Companies Act, 1956 to manage and operate various credit guarantee funds.
  •  The guarantee would be provided on portfolio basis to a maximum extent of 50 percent of Amount in Default in the portfolio.

Besides, the cabinet also approved to convert MUDRA Ltd. into MUDRA Small Industries Development Bank of India (SIDBI) Bank as a wholly owned subsidiary of SIDBI.

The MUDRA (SIDBI) Bank will undertake refinance operations and provide support services with focus on portal management; data analysis etc. apart from any other activity entrusted/advised by Government of India.


The Union Budget 2015-16 provided for MUDRA Bank and a Credit Guarantee Fund which was to be set up with a refinance corpus of 20000 crore rupees and a corpus of 3000 crore rupees respectively.

MUDRA Ltd was set up as a corporate subsidiary of SIDBI in March 2015. It was set up as a precursor to the launch of the Pradhan Mantri MUDRA Yojana (PMMY) on 8 April 2015. For this, RBI had allocated 20000 crore rupees.