Small NBFC-MFIs await credit guarantee fund in Union Budget

Small and mid-sized NBFC-MFIs (non-banking finance companies that focus on microfinance) are waiting for the Union Budget to announce a credit guarantee scheme.

This scheme, proposed by industry bodies Sa-Dhan and MFIN in August 2025, aims to help these smaller NBFC-MFIs get loans from banks.

Banks have been hesitant to lend to these smaller NBFC-MFIs due to concerns about loan quality, lack of liquidity, and other operational issues.

As a result, these smaller NBFC-MFIs are struggling to get new loans and are only able to recycle the money they recover from existing loans.

This has led to a decrease in the overall loan portfolio of the microfinance industry.

The larger NBFC-MFIs, however, are doing better as they can raise capital and get bank loans more easily.

The industry hopes that the credit guarantee scheme will help revive lending and address the liquidity problems faced by the smaller NBFC-MFIs.