Banks Seek Extension of Credit Guarantee Fund for Micro Loans

What happened

Banks have asked the government to extend the Credit Guarantee Fund for Micro Units, a programme supporting collateral-free loans to micro enterprises. It ended on March 31, 2026. IDFC First Bank and small finance banks including AU, Jana and Suryoday were among its biggest users.

Confirmed

Global impact / market context

The guarantee helps cover losses when borrowers cannot repay, reducing banks’ credit risk. If it is not renewed, banks may need to set aside more money for risky loans, raising lending costs and potentially making them more cautious about extending unsecured credit to small businesses.

Analyst inference

The article says IDFC First Bank had 97% of its microfinance portfolio covered by the scheme, while AU Small Finance Bank reported 99% coverage. That reliance makes any gap in the guarantee relevant to these lenders’ loan costs and provisions, which are funds reserved for potential losses.

Analyst inference

What to watch

1. Whether the government announces an extension, and whether its terms cover new microenterprise loans, will determine if banks can continue reducing risk through the guarantee. Analyst inference
2. Banks said they had set aside the guarantee fee for the current fiscal year while expecting the programme to reopen; watch for changes to that planning. Confirmed
3. If the scheme remains closed, watch for banks to increase provisions, meaning funds reserved for possible loan losses, or tighten unsecured microenterprise lending. Analyst inference

Evidence

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