Finance Minister Nirmala Sitharaman at a ministry briefing held on June 28 announced a new credit guarantee scheme that would facilitate loans to 25 lakh persons via microfinancing institutions (MFIs).
A loan amount of up to Rs 1.25 lakh will be provided per individual for a duration of three years. The interest rate will be at least two percent below the maximum prescribed by the Reserve Bank of India (RBI).
FM Sitharaman said while unveiling a new economic relief package to mitigate the impact of COVID-19 second wave that the credit guarantee scheme has been announced to be able to reach out to the “smallest of the small borrowers in the hinterland, including in small towns”.
Under the new scheme, a guarantee will be provided to scheduled commercial banks for loans to new or existing non-banking financial corporations (NBFC)-MFIs or MFIs to lend a maximum of Rs 1.25 lakh to around 25 lakh small borrowers.
These loans must focus on new lending and not repayment of old loans, the FM said, adding that extant RBI guidelines will be applicable, such as the number of lenders, a ceiling on household income and debt, and borrower must be a member of JLG.
“All borrowers, including defaulters up to 89 days, will be eligible for the scheme,” Sitharaman said, adding: “All stressed borrowers except NPAs will be covered.”
This guarantee cover will be valid till March 31, 2022, or till guarantees for an amount of Rs 7,500 crore issued, whichever is earlier. The guarantee will cover up to 75 percent of the default amount for up to three years through the National Credit Guarantee Trustee Company (NCGTC). During this period, the NCGTC will not charge any guarantee fee, the Finance Minister assured.The maximum tenure of the loan can be three years and 80 percent of the assistance will be used by the MFI for incremental lending.