MFI stocks in focus after CGSMFI 2.0 launch, but IIFL says not all may benefit

The Central government has launched the Credit Guarantee Scheme for MFIs 2.0 (CGSMFI 2.0), under which the National Credit Guarantee Trustee Company (NCGTC) will provide guarantees for bank and financial institution lending to NBFC-MFIs and MFIs.The scheme aims to facilitate credit flow of up to ₹20,000 crore and will cover on-lending to eligible small borrowers, both new and existing.

Under the framework, the guarantee cover will be 80% for small MFIs, 75% for medium MFIs and 70% for large MFIs.
The guarantee fee has been set at 0.50%, while lending rates are capped at EBLR or MCLR plus 2%. On-lending rates are capped at 1% below the average lending rate of the past six months.The scheme will remain valid until June 30, 2026, or until the ₹20,000 crore limit is fully utilised.

Brokerage firm IIFL said that the scheme’s corpus of ₹20,000 crore is significantly higher than the ₹7,500 crore allocated under the 2021 version.However, it added that the ₹300 crore cap per MFI is unlikely to be material for larger MFIs.

The brokerage also said that improved funding access for smaller NBFC-MFIs could weigh on market share gains for well-capitalised lenders such as CreditAccess Grameen and L&T Finance.

It further said that cheaper funding under CGSMFI 2.0 could be negative for NBFCs like Northern Arc and MAS Financial Services, which lend to these MFIs.

Morgan Stanley said, prima facie, the move appears positive for MFIs as they recover from an asset quality cycle and rebuild their loan books.

However, it flagged the need for greater clarity on whether MFIs include diversified NBFCs lending to the segment, whether the lending rate cap applies to the lower or upper end of EBLR or MCLR plus 2 percentage points, and whether the ₹300 crore cap is applicable per lending institution or across all lenders.