Pradhan Mantri Mudra Yojana : Analysis – USPC GS2

Pradhan Mantri Mudra Yojana:
  • The government launched it in 2015 for providing loans up to Rs.10 lakh to the non-corporate, non-farm small/micro-enterprises.
  • It provides funding to the non-corporate small business sector through various last-mile financial institutions like Banks, Non-Banking Financial Companies (NBFCs) and Micro Finance Institutions (MFIs).
  • MUDRA, which stands for Micro Units Development & Refinance Agency Ltd., is a government’s financial institution. It does not lend directly to micro-entrepreneurs/individuals.
  • MUDRA has created three products, i.e. ‘Shishu’, ‘Kishore’ and ‘Tarun’, as per the growth and funding needs of the beneficiary micro-units.
    • Shishu: Covering loans up to Rs. 50,000.
    • Kishore: Covering loans above Rs. 50,000 and up to Rs. 5 lakh.
    • Tarun: Covering loans above Rs. 5 lakh and up to Rs. 10 lakh.
Achievements of the scheme:
  • Over 32.53 crore loans involving a sanctioned amount of Rs. 17.32 lakh crore have been extended under PMMY since its inception in April 2015.
  • Loans have been given to disadvantaged sections of society such as women entrepreneurs, SC/ST/OBC borrowers, Minority community borrowers, etc. The focus has also been on new entrepreneurs.
  • As per a survey conducted by the Ministry of Labour and Employment, PMMY helped in generating 1.12 crore net additional employment from 2015 to 2018.
  • Out of the 1.12 crore of estimated increase in employment, women accounted for 69 lakh (62%).
Steps taken for the improvement of the Scheme:
  • Provision for online applications.
  • Some Public Sector Banks (PSBs) have put end-to-end digital lending for automated sanctions under PMMY.
  • Intensive publicity campaigns by PSBs and Mudra Ltd. for increased visibility of the scheme amongst the stakeholders.
  • Nomination of Mudra Nodal Officers in PSBs.
  • Periodic monitoring of the performance of PSBs concerning PMMY etc
Concerns:
  • Given that these are small loans up to ₹10 lakh each, with the borrowers mostly from the informal sector, banks have to monitor them very closely.
  • It is debatable whether banks have the resources and manpower to do this when they are chasing the bigger borrowers for business and, increasingly these days, recoveries.
  • The risk is that these small-ticket loans will drop under the radar and build into a large credit issue in course of time. The same logic holds true for crop loans made through Kisan Credit Cards.
Raghurm Rajan Comment:
Former RBI Governor Raghuram Rajan has flagged three major sources of potential trouble:
  • Mudra credit, which is basically small-ticket loans granted to micro and small enterprises;
  • lending to farmers through Kisan Credit Cards; and
  • contingent liabilities under the Credit Guarantee Scheme for MSMEs, run by the Small Industries Development Bank of India.