FPO Credit Guarantee Scheme Explained

This is where most FPO directors get confused, and it is not their fault. Two different credit guarantee arrangements exist for FPOs, and websites mix their numbers together.

The older one is the SFAC Credit Guarantee Fund, which came with the Equity Grant and Credit Guarantee Fund Scheme. It covers 85 per cent, with a maximum of Rs 85 lakh, and it asks for a minimum of 500 individual shareholders.

The newer one is the Credit Guarantee Fund created under the Central Sector Scheme for Formation and Promotion of 10,000 Farmer Producer Organisations. On the NABARD side this is managed by NABSanrakshan Trustee Private Limited, with a corpus of Rs 1,000 crore. NCDC manages a separate part of up to Rs 500 crore. This is the scheme almost every new FPO now falls under, and it is the one this article covers.

If you read a page that says 85 per cent and Rs 85 lakh in one line and Rs 2 crore in the next, that page has merged the two schemes. Check which fund your lender is applying to before you plan anything.

The guarantee cover works in two slabs, based on the size of the project loan.

The highest project loan eligible for cover is Rs 2 crore per FPO. The government has stated this repeatedly, including in its February 2025 release marking the completion of 10,000 FPOs.

The lending institution pays it, not the FPO. The scheme guidelines say the one-time guarantee fee "will be payable by the ELI", and ELI means Eligible Lending Institution, which is your bank or financial institution.

The fee is up to 0.75 per cent of the credit facility for project loans up to Rs 1 crore, and up to 0.85 per cent above Rs 1 crore and up to Rs 2 crore. It is charged once, not every year.

Many blogs get this wrong and tell FPOs to budget for an annual guarantee fee. Ask your branch manager directly if they intend to pass any part of this cost to you, and get the answer in writing before you sign.

Your bank does. The guidelines say the ELI "shall be required to apply to NABARD or NCDC, as the case may be, for Guarantee Cover in the specified form."

So an FPO cannot fill a guarantee application online and wait. The sequence is: your FPO applies to a lender for a project loan, the lender appraises and sanctions it, and then the lender seeks guarantee cover from NABARD through NABSanrakshan, or from NCDC. If a bank tells you to "get the guarantee first and then come back", that is not how the scheme works, and it is worth saying so politely at the counter.

The scheme guidelines set a member floor and a registration condition.

Your FPO needs a minimum of 300 farmer members if it is in the plains. In North Eastern and hilly areas the floor is 100 members.

Your FPO must be registered either as a Producer Company or as a cooperative society. On the Producer Company side, the current law is Chapter XXIA of the Companies Act 2013, which came into force on 11 February 2021. Older documents still say Part IXA of the Companies Act 1956, which has been repealed. If your registration papers cite the old Act, your company secretary should confirm the position, because banks do read this.

Two things the guidelines do not ask for, even though many articles claim otherwise. There is no credit rating or grading requirement written into the guarantee eligibility. And there is no minimum age or vintage for the FPO. The five year figure that circulates refers to the handholding and support period under the scheme, not to guarantee eligibility.

The headline says Rs 2 crore. The reality is smaller, and it is better to know this before you build a business plan around the headline.

As of February 2025, credit guarantee cover worth Rs 453 crore had been issued to 1,900 FPOs. Ten thousand FPOs have been formed under the scheme. So roughly one in five FPOs had guarantee-backed credit, and the average cover worked out to about Rs 24 lakh, not Rs 2 crore.

This does not mean the scheme is not worth using. It means banks are lending at the size your FPO can actually service, and your first sanction is likely to be a fraction of the ceiling. Plan for a first loan in the Rs 15 lakh to Rs 50 lakh range unless your FPO already has audited turnover to show.

This is the most costly misunderstanding in the whole subject, so it is worth stating plainly.

If your FPO cannot repay, the guarantee fund pays the bank. It does not pay you, and it does not cancel the debt. The FPO still owes the money, and recovery action against the FPO continues. Directors who have signed personal guarantees remain liable for whatever they have guaranteed.

Treat the guarantee as the reason a bank is willing to say yes without asking for collateral. Do not treat it as insurance for the FPO.

Two more benefits sit alongside the guarantee, and they are separate line items. Confusing them is common.

Equity grant is a matching grant of up to Rs 2,000 per farmer member, with a ceiling of Rs 15 lakh per FPO. Matching means it matches the equity your members have actually paid in. It is not free money that arrives on registration.

Management cost support is up to Rs 18 lakh per FPO over three years from the year of formation. This covers running costs such as the CEO and accountant salaries, and it is routed through the implementing arrangement, not handed to the FPO as grant capital.

The scheme's total outlay is Rs 6,865 crore, and it runs to 2027-28. Formation of the FPOs was budgeted separately at Rs 4,496 crore up to 2023-24.

A guarantee removes the collateral problem. It does not remove the credit assessment. FPOs get declined for reasons that have nothing to do with the guarantee.

The most common ones are no audited accounts for the last two years, a business plan with no buyer named against the projected sales, almost no trading history in the FPO's own bank account, and directors with poor personal credit records. Some FPOs have been registered for two years and have done business worth almost nothing, which tells the bank there is no cash flow to repay from.

If your FPO is in that position, the fastest fix is not a better application. It is six months of real trading through the FPO account, so the bank statement itself makes the case.

Once your FPO does start trading in inputs, the margin depends on buying at wholesale rates. Many FPOs begin by aggregating orders for seed, fertiliser and crop protection products for their members and buying directly from manufacturers rather than through a chain of dealers. If that is on your plan, look at bulk and institutional supply terms with manufacturers before you finalise your working capital number.

Start with the CBBO attached to your FPO, because they have the district-level contacts and they have usually seen which branches actually process these files.

Then approach a lender that already does FPO business. NABKISAN, cooperative banks, RRBs and NABARD-eligible NBFCs are the usual route, and their officers already know what CGS-FPO is. A branch that has never done an FPO loan will spend three months learning the scheme on your file.

Take three things to that first meeting: two years of audited accounts, a business plan with named buyers, and your member list with shareholding. Everything else follows from those.

If your group is smaller than 300 members and is not close to that number, an FPO may not be the right structure yet. The comparison in SHG vs FPO: which is better for farmers sets out what each one can and cannot do.