PM Modi announced inclusion of NBFCs in the Credit guarantee scheme

PM’s New Year eve speech has opened up opportunities for digital lending players, including startups in the space. PM has announced the inclusion of non-banking financial companies (NBFCs) in the credit guarantee scheme for small, medium and micro enterprises (SMEs) and also extended the scheme for loans up to Rs 2 crore.

Significance of this move:

The credit guarantee scheme for SMEs was so far open only for banks, and the inclusion of NFBCs will help new-age NBFCs reach out to more borrowers.

Extension of credit guarantees to NBFCs will help innovative players to penetrate under-served, new-to-credit borrower segments. 

Background:

So far, NBFCs had to take the entire risk only by themselves, and some were still conservative in lending to borrowers who may not have been eligible under conventional norms.

About the scheme:

The current credit guarantee scheme includes term loans or working capital facility up to Rs 100 lakh per SME borrower, extended without any collateral security or third-party guarantee. It was so far applicable only to scheduled commercial banks and some regional rural banks. The guarantee cover available under the scheme is to the extent of a maximum 85% of the sanctioned amount.