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FM Nirmala Sitaraman introduced new credit guarantee scheme for MFIs

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New Delhi: On Monday, Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman announced a various measures to provide relief to sectors affected by the 2nd wave of COVID-19 pandemic. Union Minister of State for Finance & Corporate Affairs Shri Anurag Singh Thakur; Finance Secretary Dr T.V. Somanathan; Secretary, DFS, Shri Debashish Panda and Secretary, Revenue, Shri Tarun Bajaj were also present during the announcement of relief package.

A total of 17 measures amounting to Rs. 6,28,993 crore were announced. These included new credit guarantee scheme for micro finance institutions (MFIs).

Institutions which have microfinance as their main operation are known as micro finance institutions. A number of organizations with different size and legal forms offer microfinance service. These institutions give credit through the concept of Joint Liability Group (JLG). Microfinance institutions act as a supplement to banks and in some sense a better one too. These institutions not only offer micro credit but they also provide other financial services like savings, insurance, remittance and non-financial services like individual counseling.

Features of new credit guarantee scheme for microfinance institutions (MFIs)

(i) Guarantee will be provided to Scheduled Commercial Banks for loans to new or existing NBFC-MFIs or MFIs for on lending upto Rs 1.25 lakh to approximately 25 lakh small borrowers.

(ii) Loans from banks to be capped at MCLR plus 2%. Maximum loan tenure will be 3 years, and 80% of assistance to be used by MFI for incremental lending. Interest rates will be at least 2% below maximum rate prescribed by RBI.

(iii) The scheme focuses on new lending, and not on repayment of old loans.

(iv) MFIs will lend to the borrowers in line with extant RBI guidelines such as number of lenders, borrower to be member of JLG, ceiling on household income & debt.

(v) All borrowers (including defaulters upto 89 days) will be eligible.

(vi) Guarantee cover will be available for funding provided by MLIs to MFIs/NBFC-MFIs till March 31, 2022 or till guarantees for an amount of Rs. 7,500 crore are issued, whichever is earlier.

(vii) Guarantee will be provided upto 75% of default amount for upto 3 years through National Credit Guarantee Trustee Company (NCGTC) No guarantee fee to be charged by NCGTC under the scheme.

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CA Anand Singh

CA Anand Singh

I am a practising Chartered Accountant with 6 years of experience in Direct and Indirect Taxation, FEMA, Corporate Law and Audit etc.