ECLGS 5.0 Crosses One Lakh Guarantees Centre Extends Microfinance Credit Guarantee Scheme

(MENAFN- Live Mint) New Delhi: The government-backed Emergency Credit Line Guarantee Scheme (ECLGS) 5.0 programme has crossed a major milestone within weeks of its launch, with more than one lakh guarantees issued and over ₹48,000 crore worth of credit guarantees sanctioned, according to the finance ministry.

The scheme, approved by the Cabinet on 5 May 2026, has issued 1,06,549 guarantees amounting to ₹48,484.26 crore as of 9 June. Of the total guarantees issued, 96% by number and 86% by value belong to the micro, small and medium enterprises (MSME) sector, underscoring the scheme's focus on supporting smaller businesses.

Public sector banks have played a dominant role in the rollout, accounting for 96% of the guarantees issued, helping accelerate credit delivery to eligible borrowers.

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ECLGS 5.0 provides 100% coverage for MSME loans and 90% coverage for non-MSME borrowers, encouraging lenders to extend credit amid liquidity pressures arising from the war in West Asia. The scheme aims to facilitate an additional credit flow of ₹2.55 trillion to existing borrowers.

The finance ministry said the scheme's widespread acceptance has been aided by broad participation from public and private sector banks, regional rural banks, small finance banks and non-banking financial companies. Member lending institutions have also reached out to customers through websites, emails and SMS campaigns.

In addition, the Department of Financial Services (DFS) organized outreach programmes at nine locations through State Level Bankers' Committees (SLBCs), with participation from the National Credit Guarantee Trustee Company Ltd (NCGTC), the PSB Alliance and industry stakeholders. A second phase of the outreach programme is under consideration.

Separately, the government has extended the validity of the Credit Guarantee Scheme for Microfinance Institutions-2.0 (CGSMFI-2.0) until 31 August 2026, or until guarantees covering ₹20,000 crore are issued, whichever is earlier.

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The government has also enhanced the maximum loan amount available to large NBFC-MFIs and MFIs under the scheme from ₹300 crore to ₹1,000 crore, subject to the overall cap of 20% of assets under management (AUM).

The extension and higher loan ceiling are expected to improve utilisation of the scheme and boost credit flow to the microfinance sector.

Launched on 20 March 2026, CGSMFI-2.0 provides guarantee cover through NCGTC to banks and financial institutions against expected losses on loans extended to NBFC-MFIs and MFIs for onward lending to small borrowers. Loans worth ₹770 crore have been sanctioned under the scheme so far.

Under the scheme, guarantee coverage is set at 80% of defaulted amounts for small NBFC-MFIs/MFIs, 75% for medium-sized entities and 70% for large institutions. The guarantee fee is fixed at 0.50% per annum.

Interest rates on loans extended by lending institutions to NBFC-MFIs and MFIs are capped at the external benchmark lending rate (EBLR) or marginal cost of funds-based lending rate (MCLR) plus 2 percentage points. For loans extended by MFIs to end borrowers, interest rates must remain at least 1 percentage point below the institution's average lending rate over the previous 6 months.

The two announcements highlight the government's continued focus on using sovereign-backed credit guarantee mechanisms to sustain credit flows to businesses and vulnerable borrowers amid ongoing economic and geopolitical uncertainties.

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