Small, mid-sized NBFC-MFIs hope for a credit guarantee fund announcement in Union Budget
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The top 15-20 NBFC-MFIs account for about 85 per cent of the portfolio of NBFC-MFIs
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As the Union Budget approaches in 20 days, small and mid-sized NBFC-MFIs (non-banking finance company – microfinance institutions) are advocating for the implementation of a credit guarantee scheme, proposed by industry bodies last year to facilitate bank lending.
In August 2025, Sa-Dhan and MFIN, the sector’s Self-Regulatory Organisations (SROs), submitted a request to the government for a ₹20,000-crore credit guarantee scheme to address funding challenges. However, authorities have yet to formally respond to this proposal.
The initiative was designed to counter banks’ growing hesitation in lending to small and mid-sized NBFC-MFIs, driven by concerns over asset quality, liquidity constraints, operational hurdles, reduced disbursements, and lower client retention.
Recycled lending
Smaller MFIs face significant challenges due to funding constraints, according to Jiji Mammen, Executive Director & CEO of Sa-Dhan. “Bank disbursements to these institutions have either ceased or become severely restricted. MFIs now rely entirely on loan recoveries to fund new lending and repay existing debts, resulting in minimal growth. Although larger NBFC-MFIs—which hold 85% of the sector’s portfolio—have resumed activity, smaller players remain constrained,” Mammen explained.
MFIN has reiterated calls for reviving the Credit Guarantee Scheme for MFIs (CGSMFI) and establishing a dedicated financing facility to resolve persistent liquidity challenges in the November 2025 sector report.
Recent data from Sa-Dhan’s quarterly microfinance report (July–September 2025) reveals a 15.5% year-on-year contraction in the industry’s outstanding loan portfolio, amounting to ₹3,41,947 crore as of September 2025. This portfolio spans NBFC-MFIs (94 entities), banks (17), small finance banks (10), NBFCs (99), and other lenders (65).
Published on January 11, 2026
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