What Is the CGFMU Scheme? Full Form, Benefits & Features Explained

India is a land of enthusiasm and entrepreneurship. To support entrepreneurs from all walks of life, our Hon’ble PM, Shri Narendra Modi, launched the Pradhan Mantri MUDRA Yojana (PMMY). All eligible loans under the PMMY scheme are guaranteed by the CGFMU fund.

But what does the CGFMU scheme mean? CGFMU stands for Credit Guarantee Fund for Micro Units. It provides credit guarantee coverage for microloans, significantly reducing the risk for lenders in case of borrower default. By doing so, the CGFMU reinforces the government’s commitment to boost an entrepreneurial ecosystem by making collateral-free loans accessible to small businesses. 

In this article, we’ll explore the CGFMU coverage details, eligibility criteria, benefits, and more.

CGFMU Scheme Objectives

The main objective of the CGFMU is to promote and support micro and small enterprise (MSME) loans. The CGFMU is a trust fund managed by the National Credit Guarantee Trustee Company (NCGTC), which operates under the aegis of the Government of India.

The purpose of the CGFMU is to guarantee payment against default for microloans. This substantially reduces the risk for lending institutions so they can extend their credit facilities to micro and small enterprises.

The reduced risk enables them to extend unsecured loans to micro-enterprises that might otherwise be excluded due to a lack of collateral or third-party guarantees.

Nature of CGFMU Facility

The CGFMU acts as a guarantor on microloans obtained through eligible member lending institutions. The CGFMU doesn’t directly lend money, but instead, it guarantees a portion of the loan amount (up to 75 %) in the case of a default.

Quantum of Finance Under CGFMU

The CGFMU provides coverage to microloans under the PMMY, granted by participating lending institutions, up to INR 20 lakhs .

It also covers overdraft loan amounts sanctioned under Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts of up to INR 10,000. Furthermore, the CGFMU also extends its guarantee to Self Help Group (SHG) portfolios ranging from INR 10 lakhs to INR 20 lakhs. 

The loan terms and interest rates under the CGFMU scheme are determined by the lending institution. They may vary from one lender to another. However, the lending institutions must comply with regulatory and CGFMU guidelines to be eligible for the guarantee.

CGFMU Eligibility Criteria

The eligibility criteria for businesses to qualify for CGFMU guarantee coverage are listed below:

• The CGFMU loan limits are up to INR 20 lakhs. The credit is extended by Member Lending Institutions (MLIs) to eligible borrowers.
• The beneficiary should be a new or existing micro unit/enterprise as defined in the MSMED Act, 2006.
• No additional collateral or third-party guarantee should be attached to these microloans.
• The enterprise should not have any past defaults.
• The enterprise must not be involved in any activity that is illegal or harmful to the environment.
• Microloans that do not adhere to the interest rates prescribed by the CGFMU will not qualify for guarantee cover.

Key Takeaways from the CGFMU Scheme

The CGFMU fund guarantees microloans sanctioned under the PMMY, thus reducing the risk of lending. Hence, under the MUDRA loan guarantee scheme, MSMEs can access business loans without any collateral. Entrepreneurs with successful repayment track records can be eligible for higher loan amounts up to INR 20 lakhs under the Tarun Plus category.

The credit guarantee scheme for microloans applies only when loans are issued by recognised MLIs and meet scheme conditions. Borrowers are still responsible for loan repayment, and non-compliance could lead to default and loss of future creditworthiness.

Conclusion

The CGFMU scheme benefits small businesses by easing access to credit without the need for collateral. It helps create a more inclusive financial ecosystem, encouraging entrepreneurship and economic growth.

If you’re exploring financial support for your enterprise, SMFG India Credit offers unsecured business loans tailored for MSME requirements. Check your eligibility and access up to INR 1 crore* at competitive interest rates and flexible tenures of up to 60 months*.