CGFMU vs CGTMSE — Complete Comparison: Full Form, Fee Structure & Key Differences
CGFMU (Credit Guarantee Fund for Micro Units) covers only Mudra/PMMY loans up to ₹20 lakh under a portfolio guarantee model managed by NCGTC. CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) covers all MSE loans up to ₹10 crore under an individual loan guarantee managed by SIDBI and the Ministry of MSME. Both provide collateral-free credit guarantee — but they differ in loan limits, the type of enterprises covered, how coverage is calculated, and how the annual guarantee fee works.
What Is CGFMU? (Credit Guarantee Fund for Micro Units)
CGFMU full form: Credit Guarantee Fund for Micro Units. It was notified on 18 April 2016 (Gazette Notification S.O. 1443(E)) as the guarantee backbone of the Pradhan Mantri Mudra Yojana (PMMY). CGFMU is managed by NCGTC — National Credit Guarantee Trustee Company Limited, a company set up by the Department of Financial Services under the Ministry of Finance. In simple terms: every time a bank or NBFC sanctions a Mudra loan and the borrower later defaults, CGFMU is the fund that compensates the lender.
CGFMU operates as a portfolio guarantee — not a per-loan guarantee. Lenders enrol their entire Mudra loan portfolio with NCGTC at the end of each financial year (called portfolio crystallisation). If defaults occur, the lender bears the first 3% of losses itself; beyond that, CGFMU covers up to 50% of remaining defaults on a pro-rata basis, subject to an overall portfolio payout cap of 15% of the crystallised portfolio value. This structure keeps the scheme financially sustainable even if large numbers of micro borrowers default.
CGFMU — Mudra Loan Categories Covered
| Category | Loan Range | Typical Borrower | CGFMU Covered? |
|---|---|---|---|
| Shishu | Up to ₹50,000 | Street vendors, artisans, first-time borrowers | ✓ Yes |
| Kishor | ₹50,001 – ₹5 lakh | Small traders, micro manufacturers | ✓ Yes |
| Tarun | ₹5 lakh – ₹10 lakh | Established micro units seeking expansion | ✓ Yes |
| Tarun Plus NEW | ₹10 lakh – ₹20 lakh | Borrowers who repaid a prior Tarun loan | ✓ Yes (from Oct 2024) |
The Tarun Plus category was added by Gazette Notification S.O. 4658(E) dated 24 October 2024 — following the Union Budget 2024–25 announcement that raised the Mudra loan ceiling from ₹10 lakh to ₹20 lakh. However, Tarun Plus is available only to borrowers who have already repaid a previous Tarun loan, making it a reward for credit-disciplined micro borrowers.
What Is CGTMSE? (Credit Guarantee Fund Trust for Micro and Small Enterprises)
CGTMSE full form: Credit Guarantee Fund Trust for Micro and Small Enterprises. Established in August 2000 as a joint initiative of the Government of India (Ministry of MSME) and SIDBI, with a corpus contribution ratio of 4:1 (GoI:SIDBI). Unlike CGFMU which is Mudra-specific, CGTMSE covers all collateral-free credit facilities extended to micro and small enterprises — term loans, working capital, non-fund-based limits — regardless of whether they are PMMY loans or not.
CGTMSE operates as an individual loan guarantee: every eligible facility is registered separately on the CGTMSE portal and carries its own guarantee cover. Coverage ranges from 75% to 90% of the outstanding loan depending on the borrower category and loan size, with the guaranteed amount paid out in two instalments when a claim is lodged. The maximum loan covered per borrower was raised to ₹10 crore with effect from 1 April 2025. For a deep-dive on CGTMSE, read our detailed guide: CGTMSE Scheme Explained.
CGFMU vs CGTMSE — Complete Comparison Table
| Parameter | CGFMU | CGTMSE |
|---|---|---|
| Full Form | Credit Guarantee Fund for Micro Units | Credit Guarantee Fund Trust for Micro & Small Enterprises |
| Managed By | NCGTC (Ministry of Finance, GoI) | CGTMSE Trust (Ministry of MSME + SIDBI) |
| Established | 2016 | 2000 |
| Parent Scheme | PMMY (Mudra loans only) | Standalone — all MSE credit facilities |
| Target Segment | Micro units only | Micro AND Small Enterprises |
| Maximum Loan Covered | ₹20 lakh (since Oct 2024) | ₹10 crore (since Apr 2025) |
| Guarantee Model | Portfolio guarantee (annual batch) | Individual loan guarantee (per facility) |
| Coverage % | Up to 75% (with 3% first-loss & 15% portfolio cap) | 75%–90% depending on category |
| Annual Guarantee Fee | ~1% p.a. (standard basic rate, risk-adjusted) | 0.37%–1.20% p.a. (slab-based) |
| Who Pays the Fee | Lender (borrower typically pays nothing) | Lender — usually passed on to borrower |
| Eligible Lenders | Banks, NBFCs, MFIs, RRBs approved under PMMY | All SCBs, NBFCs, SFBs, MFIs, Co-ops, RRBs, SIDBI, NSIC |
| Service Enterprises | Covered (if classified as micro unit under MSMED Act) | Covered — manufacturing, services, retail trade |
| Agriculture | Excluded | Excluded |
| Lock-in Period | 1 year from portfolio crystallisation | 18 months from last disbursement (9 months for ≤₹10L, ≤36M tenor) |
| Claim Settlement | Portfolio-level; within 60 days of compliant claim | Two instalments: 75% first; 25% after 3 years or OTS |
| Mandatory for Lender? | No — discretionary for MLI | No — discretionary for MLI |
CGFMU Fee Structure — How Much Does It Cost?
CGFMU uses a risk-based portfolio fee model. The lending institution pays an Annual Guarantee Fee (AGF) to NCGTC calculated on the outstanding/sanctioned portfolio balance. Unlike CGTMSE, the borrower is not required to pay the guarantee fee — it is entirely a lender-side cost. This is one of CGFMU's biggest advantages for micro borrowers: they effectively get a collateral-free guarantee at zero direct cost.
| Lender / Portfolio Type | Standard Basic Rate (SBR) | Notes |
|---|---|---|
| Banks and RRBs | 1.00% p.a. | Risk premium added for higher-NPA portfolios |
| NBFCs (AAA-rated) | 1.00% p.a. | No additional risk premium |
| NBFCs (below BBB−) | 1.50% p.a. | +50% risk premium over SBR |
| SHG portfolios (Year 1) | 0.25% p.a. | Concessional for first year |
| SHG portfolios (Year 2+) | 0.50% p.a. | — |
| Aspirational Districts (selected FYs) | 0.50% p.a. | Concessional rate to encourage lending in underserved districts |
From FY 2023–24, CGFMU fees are calculated on the outstanding principal balance as on 1 April of the financial year (not on the sanctioned amount, except for working capital accounts). This means the annual fee naturally reduces each year as borrowers repay — a built-in cost relief for the lender. For a portfolio of Shishu loans where NPA tends to be high, NCGTC may apply a risk premium over the 1% SBR. For more on CGFMU, see our earlier article: Credit Guarantee Fund for Micro Units (MUDRA).
CGTMSE Fee Structure — Annual Guarantee Fee (AGF) Rates 2025
CGTMSE completely restructured its fee model in November 2022, abolishing the old one-time upfront fee and moving to an annual-only model. Fees were further reduced from April 2023 and again from April 2025 (Circular No. 251/2024–25 dated 18 March 2025), making CGTMSE significantly more affordable than it was even two years ago. The fee is slab-based — larger loans attract proportionally higher rates.
| Loan Slab | Standard AGF (p.a.) | Annual Fee on ₹10L Loan (Year 1) |
|---|---|---|
| Up to ₹10 lakh | 0.37% | ₹370 |
| ₹10 lakh – ₹50 lakh | 0.55% | ₹550 per ₹1L borrowed |
| ₹50 lakh – ₹1 crore | 0.60% | ₹600 per ₹1L borrowed |
| ₹1 crore – ₹2 crore | 0.85% | — |
| ₹2 crore – ₹5 crore | 1.00% | — |
| ₹5 crore – ₹8 crore | 1.10% | — |
| ₹8 crore – ₹10 crore | 1.20% | — |
How the fee is calculated: In Year 1, the AGF is charged on the sanctioned loan amount. From Year 2 onwards, it is charged on the outstanding principal balance as at the start of that year — so the fee naturally reduces each year as the loan is repaid. Special concessions of 10% each apply for women entrepreneurs, SC/ST/PwD, NER-based enterprises, ZED-certified MSEs, and Aspirational District borrowers. Women entrepreneurs in Aspirational Districts can combine concessions. For the complete fee calculation guide with worked examples, see our article: CGTMSE Fee Structure 2026 — Complete Guide.
Understanding Coverage — How Each Scheme Pays on Default
The most important — and most misunderstood — difference between CGFMU and CGTMSE is how they actually pay out when a borrower defaults.
- Lender bears the first 3% loss on the crystallised portfolio
- Beyond 3%, CGFMU covers 50% on a pro-rata basis
- Portfolio cap: 15% of total crystallised portfolio — CGFMU pays no more than this regardless of actual defaults
- Claims settled at portfolio level within 60 days
- Good for lenders with large volumes of small Mudra loans — batch-settled annually
- Each loan is guaranteed individually — no portfolio cap applies
- Coverage: 85% for micro loans ≤₹5L; 75% for larger loans; 90% for women borrowers
- First instalment (75%) of guaranteed amount: settled within ~30 days of claim
- Second instalment (25%): after 3 years or full OTS recovery
- Lock-in of 18 months (9 months for ≤₹10L, ≤36M tenor) before claim can be lodged
Practical implication for bank officers: On a single defaulted ₹8 lakh Mudra loan in an otherwise-performing portfolio, CGFMU can cover up to 75% of the default amount. But if a branch's entire Mudra book turns bad, NCGTC pays at most 15% of the total crystallised portfolio — meaning a significant uncovered loss for the bank. CGTMSE's individual model carries no such aggregate cap: every eligible defaulted loan is settled independently at the applicable coverage percentage.
When Should a Bank Officer Choose CGFMU Over CGTMSE?
- The loan is sanctioned under PMMY (Mudra) — loan is branded as Shishu / Kishor / Tarun / Tarun Plus
- The loan amount is ₹20 lakh or below and the borrower qualifies as a micro unit
- The borrower cannot afford any guarantee fee — CGFMU is effectively free for them
- Lending through an MFI or NBFC approved under the Mudra framework
- The branch is in an Aspirational District — CGFMU's concessional 0.5% SBR reduces lender cost
- The account is a PMJDY overdraft up to ₹10,000
- The loan exceeds ₹20 lakh — CGFMU cannot cover; CGTMSE covers up to ₹10 crore
- The borrower is a Small Enterprise (not just Micro) — CGTMSE covers both
- The facility is not a Mudra loan — general MSE working capital, CC, term loan, etc.
- You want a clean individual loan guarantee with no portfolio cap risk
- The borrower is a woman entrepreneur — CGTMSE offers 90% coverage (from Dec 2024)
- The borrower is in NER / J&K / Ladakh — CGTMSE gives 80% coverage
- The lender is a State Financial Corporation, Urban Co-op Bank, or NSIC — eligible under CGTMSE but not CGFMU
Can Both CGFMU and CGTMSE Cover the Same Loan?
No — a single credit facility cannot be covered by both CGFMU and CGTMSE simultaneously. CGTMSE explicitly excludes “any credit facility in respect of which risks are additionally covered by Government or by any general insurer.” When lodging a CGTMSE guarantee for a loan up to ₹10 lakh to a micro unit, the MLI must confirm the facility is not already covered under CGFMU.
However: A single borrower can have different facilities covered under each scheme. Example — a borrower's existing ₹8 lakh working capital covered under CGFMU can later have a new ₹25 lakh machinery term loan covered under CGTMSE. The key rule is: one guarantee scheme per facility, not per borrower.
Latest Updates — CGFMU and CGTMSE
- April 2025: CGTMSE raises maximum loan limit from ₹5 crore to ₹10 crore per borrower (Circular No. 250/2024–25, dated 18 March 2025). AGF slab structure updated to include ₹5–₹10 crore range (Circular No. 251/2024–25).
- December 2024: CGTMSE enhances coverage for women entrepreneurs from 85% to 90% (Circular 241, dated 10 December 2024).
- October 2024: CGFMU adds the Tarun Plus category — loans from ₹10 lakh to ₹20 lakh now covered under CGFMU for borrowers who have repaid a prior Tarun loan (Gazette Notification S.O. 4658(E), dated 24 October 2024).
- April 2023: Major CGTMSE restructuring — loan limit raised to ₹5 crore, AGF substantially reduced, retail trade and MFIs added, coverage percentages revised. (Circulars 220–221, March 2023).
- November 2022: CGTMSE abolishes the one-time upfront guarantee fee — switches to annual-only model (Circular 208).
Related Reading on BankersClub
What is the full form of CGFMU?
CGFMU stands for Credit Guarantee Fund for Micro Units. It was notified in April 2016 as the guarantee mechanism for Pradhan Mantri Mudra Yojana (PMMY). CGFMU is managed by NCGTC (National Credit Guarantee Trustee Company Limited) under the Ministry of Finance. It covers Mudra loans across all four categories u2014 Shishu (up to u20b950,000), Kishor (up to u20b95 lakh), Tarun (up to u20b910 lakh), and Tarun Plus (up to u20b920 lakh, added October 2024) u2014 extended by banks, NBFCs, MFIs, and RRBs.
What is the difference between CGFMU and CGTMSE?
The key differences are: (1) Scope: CGFMU covers only Mudra/PMMY loans (micro units, max u20b920 lakh); CGTMSE covers all collateral-free MSE credit up to u20b910 crore. (2) Guarantee model: CGFMU uses a portfolio guarantee (batch of loans crystallised annually, 15% portfolio cap); CGTMSE is an individual loan guarantee with no portfolio cap. (3) Coverage: CGFMU covers up to 75% per loan (portfolio structure); CGTMSE covers 75%u201390% per individual loan. (4) Fee: CGFMU fee is borne by the lender and not passed on to the borrower; CGTMSE fee is typically charged to the borrower. (5) Eligible enterprises: CGFMU u2014 micro only; CGTMSE u2014 micro and small enterprises.
Which is better u2014 CGFMU or CGTMSE?
Neither is universally better u2014 the right choice depends on the loan. CGFMU is better when the loan is a Mudra loan under u20b920 lakh: the borrower pays zero guarantee fee, and the process is simpler. CGTMSE is better when the loan exceeds u20b920 lakh, the borrower is a Small Enterprise (not just Micro), or you need a clean individual loan guarantee with no portfolio-level cap. CGTMSE also offers higher coverage (up to 90% for women borrowers) and a wider lender base. For micro borrowers with Mudra loans, CGFMU has a clear cost advantage; for larger MSE loans, CGTMSE is the only option.
Is the CGFMU fee charged annually? Who pays it?
Yes, the CGFMU Annual Guarantee Fee (AGF) is charged annually. The lending institution (bank/NBFC/MFI) pays the fee to NCGTC u2014 the borrower is not required to pay. The standard basic rate (SBR) is 1% per annum of the portfolio outstanding balance (calculated as on 1 April each financial year). Risk-based premiums may apply for higher-NPA portfolios. Concessional rates of 0.50% p.a. apply for lending in Aspirational Districts and 0.25u20130.50% p.a. for SHG portfolios. The borrower effectively receives the guarantee at zero cost, which is one of CGFMU’s major advantages over CGTMSE.
Can CGFMU and CGTMSE both be used for the same loan?
No u2014 double coverage of a single facility is not permitted. CGTMSE explicitly excludes facilities already covered by another Government guarantee scheme. If a Mudra loan (u2264u20b920 lakh) is covered under CGFMU, the same facility cannot be registered under CGTMSE. However, the same borrower can have different facilities covered under each scheme: for example, a u20b910 lakh working capital loan covered under CGFMU and a separate u20b940 lakh term loan covered under CGTMSE for the same borrower is permitted. The restriction is per-facility, not per-borrower.