New Credit Guarantee Scheme Offers Support to Microfinance Institutions
Microfinance business thrown a lifeline but still not out of the woods
Business Standard
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The ₹20,000 crore (approximately $2.4 billion USD) Credit Guarantee Scheme for Microfinance Institutions-2.0 (CGSMFI 2.0) aims to support microfinance institutions in India until June 30 or until the coverage limit is reached. However, smaller institutions may struggle to secure funding as banks favor larger, better-rated MFIs.
- 01The CGSMFI 2.0 scheme is worth ₹20,000 crore (roughly $2.4 billion USD).
- 02The scheme is effective from March 20 and will last until June 30 or until the coverage limit is reached.
- 03Banks are more inclined to fund larger, well-rated microfinance institutions.
- 04Smaller MFIs may face challenges in adapting to the funding landscape.
- 05The scheme was designed before the West Asia crisis, which may affect its effectiveness.
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The ₹20,000 crore (approximately $2.4 billion USD) Credit Guarantee Scheme for Microfinance Institutions-2.0 (CGSMFI 2.0) was launched to support microfinance institutions in India, effective from March 20 and running until June 30 or until the coverage limit is reached. The scheme aims to provide critical funding to microfinance institutions, particularly at a time when smaller players are struggling. However, banks are primarily focusing on larger and better-rated microfinance institutions, which may hinder access for smaller MFIs. This funding lifeline was conceived prior to the ongoing West Asia crisis, raising concerns about the potential increase in stress among the lower-income segments of the population, who rely heavily on these institutions for financial support.
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The CGSMFI 2.0 scheme could provide essential funding to microfinance institutions, potentially stabilizing financial services for low-income individuals. However, if smaller MFIs cannot access this funding, it may lead to increased financial stress for those relying on these institutions.
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