Budget 2026: Centre Mulls Mega Microfinance Credit Guarantee Scheme for NBFCs

The Ministry of Finance and Corporate Affairs is mulling a plan to introduce a mega microfinance credit guarantee scheme for non-banking financial companies (NBFCs) in the upcoming Union Budget, Mint reported, citing sources. The proposed one-time credit guarantee scheme is expected to boost NBFC–microfinance institutions (NBFC-MFIs) by enabling easier and greater access to bank funding and helping manage liquidity pressures while maintaining lending to low-income households, the report said.

The scheme is expected to be larger than the ₹7,500 crore credit guarantee offered during the pandemic. It is likely to be managed by the state-run National Credit Guarantee Trustee Company (NCGTC), the report said. The NCGTC would cover and underwrite lending risks faced by NBFC-MFIs arising from factors beyond the control of small borrowers.

The proposal comes against the backdrop of India’s microfinance sector—currently estimated at a ₹3.34 trillion loan portfolio—shrinking steadily, the report highlighted. “The proposed credit guarantee scheme, which has been under discussion within the government for some time, is being considered for launch when the Budget proposals for 2026–27 are announced next month,” Mint reported, citing one of the sources.

MFIs Remain an Important Segment

Microfinance institutions play a crucial role in the financial sector by formalising credit access for low-income households and supporting financial inclusion for populations that otherwise rely on informal and unregulated sources of borrowing. Credit guarantees help lower financing risks for banks and other lending institutions, according to reports.

The proposed scheme could be significant as banks are currently restrained from lending to MFIs due to the inherent risks associated with the sector. These risks have also pushed up borrowing costs for MFIs, limiting the flow of funds, the report said.

According to data from the Microfinance Industry Network (MFIN), the sector’s gross loan portfolio declined to ₹3.34 trillion as of November 30, 2025, from ₹3.75 trillion on March 31, 2025, and ₹4.3 trillion on March 31, 2024.