11 min readShort answer
A credit guarantee does not give your FPO money. It gives your bank a safety net, so the bank can lend to your FPO without asking for land or building as security. Under the 10,000 FPO scheme, an FPO can get a project loan of up to Rs 2 crore covered by a guarantee. Loans up to Rs 1 crore get 85 per cent cover, and loans between Rs 1 crore and Rs 2 crore get 75 per cent cover, with a maximum cover of Rs 1.5 crore. The bank applies for this cover, not the FPO, and the bank pays the fee.
First, know which of the two schemes you are reading about
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.
How much cover your FPO gets
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.
Who pays the guarantee fee
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.
Who applies for the guarantee
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.
Which FPOs are eligible
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.
What the numbers look like in practice
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.
A guarantee is not a waiver
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.
The other money under the same scheme
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.
Why banks still say no
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.
What to do next
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.
Frequently asked questions
How much loan can an FPO get without collateral?
Up to Rs 2 crore as a project loan, backed by credit guarantee cover under the 10,000 FPO scheme. The cover is 85 per cent for loans up to Rs 1 crore and 75 per cent above that, with a maximum cover of Rs 1.5 crore. In practice most sanctions are far smaller. As of February 2025, cover worth Rs 453 crore had gone to 1,900 FPOs, an average of about Rs 24 lakh each.
Who pays the guarantee fee, the FPO or the bank?
The lending institution pays it. The scheme guidelines put the one-time fee on the Eligible Lending Institution. The rate is up to 0.75 per cent for loans up to Rs 1 crore and up to 0.85 per cent above that. Ask your bank in writing whether they intend to recover any part of it from you.
Can a new FPO with 300 members apply?
Yes. The floor under the 10,000 FPO scheme is 300 farmer members in the plains and 100 in North Eastern and hilly areas. The 500 shareholder condition you may have read belongs to the older SFAC Credit Guarantee Fund, which is a different scheme.
How does an FPO apply for the credit guarantee online?
It does not. The FPO applies to a bank for a loan. After the bank sanctions the loan, the bank applies to NABARD through NABSanrakshan, or to NCDC, for the guarantee cover.
Is credit guarantee the same as loan waiver?
No. If the FPO defaults, the fund pays the bank. The FPO still owes the money and recovery continues against the FPO. The guarantee protects the lender, not the borrower.
Which banks give loans to FPOs under this scheme?
Eligible Lending Institutions include NABKISAN, cooperative banks, regional rural banks, scheduled commercial banks and NABARD-eligible NBFCs. Ask your CBBO which branches in your district have already done FPO loans, because that saves months.
Do FPO directors have to give a personal guarantee?
That is the bank's decision, not the scheme's. The guarantee cover does not stop a lender from asking directors for personal guarantees. Ask this question at the first meeting, before the file moves.
What is the difference between the SFAC credit guarantee and the NABARD CGS-FPO?
SFAC's fund sits under the older Equity Grant and Credit Guarantee Fund Scheme, covers 85 per cent up to a maximum of Rs 85 lakh, and needs 500 shareholders. The CGS-FPO under the 10,000 FPO scheme is managed on the NABARD side by NABSanrakshan, covers project loans up to Rs 2 crore, and needs 300 members in the plains.
Does the credit guarantee cover a working capital loan?
The scheme is written around project loans up to Rs 2 crore per FPO. What your lender is willing to structure as a project loan, including a working capital component, is decided at the branch. Get the facility type confirmed before sanction, because the cover follows the sanction.
How long does the guarantee take after the bank sanctions the loan?
No official processing time is published. The delay you will actually feel is at the branch, before sanction, not at the fund afterwards.
Sources used
Operational Guidelines, Central Sector Scheme for Formation and Promotion of 10,000 FPOs, Department of Agriculture and Farmers Welfare — https://static.pib.gov.in/WriteReadData/userfiles/FPO%20Scheme%20Guidelines.pdf
NABARD, NABSanrakshan and the Credit Guarantee Fund for FPOs — https://www.nabard.org/nabsanrakshan.aspx
PIB, 10,000 FPOs achieved, 28 February 2025 — https://www.pib.gov.in/PressReleaseIframePage.aspx?PRID=2106913®=48&lang=2
PIB, Formation and Promotion of FPOs, 8 August 2025 — https://www.pib.gov.in/PressReleasePage.aspx?PRID=2154174
PIB, Producer Company registration under Chapter XXIA of the Companies Act 2013, 14 December 2021 — https://www.pib.gov.in/PressReleaseIframePage.aspx?PRID=1781435
Recommended external anchor links inside the article: "10,000 FPO scheme guidelines" to the PIB guidelines PDF, and "NABSanrakshan" to the NABARD page. Nothing else is needed.
| Project loan | Guarantee cover | Maximum cover amount |
|---|---|---|
| Up to Rs 1 crore | 85 per cent | Rs 85 lakh |
| Above Rs 1 crore up to Rs 2 crore | 75 per cent | Rs 1.5 crore |
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