Mfin and SA-Dhan have cited the success of the COVID period Scheme of the government for MFIs, which offered a 75% guarantee on financing extended by member loan institutions (MLIs) to NBFC-MFIS/MFIs for further on-lending to be eligible for eligible small borrowers | Photocredit: Getty images
To encourage banks to increase lending to the non-bank financing company microfinance institutions (NBFC-MFIS), MFI Sector Self-Regulatory Organizations (SROs) MFIN and SA-Dhan-Hebben proposed to the Ministry of Finance to formulate a credit guarantee scheme.
While Mfin has disputed a credit guarantee schedule from £ 15,000 crore to £ 20,000 crore, SA-Dhan wants a guarantee scheme of a suitable size that will meet the liquidity needs of small and medium-sized NBFC MFIs.
Banks have tightened credit rating standards for NBFC-MFIs after the asset quality of the latter deteriorated as a result of a large number of factors, including the Heatwolf of June 2024 in some parts of the country, which are inevitable in the income-generating activities of borrowers to have the credit costs to be refunded. As a result, the financing from banks to NBFC-MFIS has fallen.
Covid schedule
Mfin and SA-Dhan have cited the success of the COVID period scheme of the government: the £ 7,500 crore credit guarantee scheme for MFIs provided 75 percent guarantee for financing extended by member credit institutions (MLIs) to NBFC-MFIS/MFIs for small assets provided.
Alok Misra, CEO & Director, Mfin, said: “We asked the government for a credit guarantee scheme. We emphasized that the 2021 scheme set up a virtuous cycle, it had no tax implications. The whole money came back; nobody called on the guarantees.”
Misra noted that Mfin is also working on a meeting with the bankers. “So, both Trek- and Push factors work, and we hope that we will see a solution for liquidity within one to two months (tightness with which MFIs are confronted). We will also be able to demonstrate (on the banks) that despite the fall of payment (of bad loans),” said the Mfin -Chef.
‘Collecting funds not easy’
Jiji Mammen, executive director and CEO, SA-Dhan, noted that fundraising is a major challenge for small and medium-sized microfinance institutions.
“Lenders need a kind of comfort for lending. This comfort can be given in the form of a sovereign warranty. This was done during the COVID time. A guarantee fund of £ 7,500 Crore was then created. Based on this, banks Krediet to various MFIs.
“Based on the good track record of the earlier guarantee fund, we asked the government to set up another fund, so that NBFC-Mfis, who specializes in last-mile financing, get loans from banks and grow their book,” said Mammen.
Published on August 12, 2025
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