Govt increases loss coverage for micro loan defaults to 75%

The Ministry of Finance has announced amendment in Credit Guarantee Fund for Micro Units (CGFMU) scheme, which covers micro loans up to Rs 10 lakh extended under the Pradhan Mantri Mudra Yojana.
The government has announced an increase in coverage of lender’s loss in case of loan default under the CGFMU scheme to 75% from 50% earlier to incentivise lending to micro businesses and support them during the coronavirus outbreak.k and the ensuing nationwide lockdown.
Also, the ministry has reduced the burden of defaults that the lender had to bear under the scheme from the first 5% of the amount in default to 3%.
Another change in the scheme is the inclusion of loans to SHGs. Loans between Rs 10 lakh and Rs 20 lakh sanctioned to SHGs in 2020-21 will be covered under CGFMU scheme.
The Credit Guarantee Fund for Micro Units (CGFMU) scheme was set up in April 2016 with the purpose of guaranteeing payment against default in Micro Loans extended to eligible borrowers by Banks/ NBFCs/ MFIs/ Other Financial Intermediaries.
The Govt. of India, through Ministry, of Finance settles the loan default with the help of National Credit Guarantee Trustee Company Ltd (NCGTC).