PM Mudra Yojana completes 8 years

PM Mudra Yojana completes 8 years

News: The Pradhan Mantri Mudra Yojana (PMMY) was launched by the Indian government eight years ago to
provide financial support and encourage self-employment among micro and small-sized enterprises.
 The Micro Units Development & Refinance Agency (MUDRA) was launched on April 8, 2015, by Prime Minister Narendra Modi to provide loans up to Rs 10 lakh to non-corporate, non-farm, small and micro enterprises.
 The loans are given under three categories: Shishu up to Rs 50,000, Kishore Rs 50,001 to Rs 5 lakh, and Tarun from Rs 5 lakh to Rs 10 lakh. Mudra loans do not require any collateral/ security, and hence were perceived to be very risky

Need for Mudra Scheme
 Local/Small businesses/entrepreneurs in India face challenges in accessing credit from formal financial
institutions due to factors such as lack of collateral or credit history. Mudra Yojana addresses the issue by
providing collateral free loans.
 Small businesses in India are one of largest source of employment in country but they have potential to do
even better. Mudra yojana helps small businesses avail loans and invest and expand their business and
create more jobs.
 It promotes financial inclusion.
 Women entrepreneurs often face significant challenges in accessing credit in India due to factors such as
lack of collateral or social norms. The Mudra Scheme has a special focus on supporting women
entrepreneurs, providing collateral-free loans and promoting greater gender equality in the economy.
 It promotes entrepreneurship as it emphasizes on first-time borrowers and startup’s.

Performance of Mudra Yojana:
 According to the government, approximately 40.82 crores in loans totalling $23.2 trillion have been sanctioned under the Pradhan Mantri Mudra Yojana (PMMY) since its start eight years ago.

 About 68% of accounts under the scheme belong to women entrepreneurs and 51% of accounts belong to entrepreneurs of SC, ST and OBC categories.
 The average ticket size for Mudra loans obtained by customers from banks and other financial institutions is less than Rs 50,000. The share of Shishu loans is the highest, at 40%, suggesting that the PMMY has largely supported first-time entrepreneurs.

Key challenges as observed by some experts:
 The Mudra Scheme does not provide credit guarantee to the banks that lend under the scheme. This can lead to a reluctance among banks to lend to small and micro enterprises.
 Benefits of scheme aren’t reaching to intended beneficiaries.
 There is a concern that the Mudra Scheme may lead to a rise in non-performing assets (NPAs) in the banking system as the scheme offers collateral-free loans to small and micro enterprises. This can lead to a high default rate and NPAs. (However, bad loans under Mudra yojana is just 3.38 per cent of the total disbursements of Rs 13.64 lakh crore under the scheme) This statistic is impressive and which highlight that small businesses are timely repaying to the banks.

Advantages of Mudra scheme:
 Increased access to credit and at lower interest rates
 Promotes financial inclusion and entreprenuership
 Increases confidence of marginalized group who are major beneficiaries of the scheme
 Flexible loan options considering the needs of the borrower

What else can be done?
 More efforts can be made to reach out to remote places and further enhance rural-entrepreneurship
 Strengthen monitoring and evaluation to ensure deserving people do not miss out on availing benefits of the scheme
 Increase participation of private sector banks to a greater extent. Currently, public sector banks provide larger share of loans under Mudra scheme
 The scheme can consider increasing the loan amount for borrowers, especially those who have a good track record of repayment. This can help businesses access larger amounts of credit and invest in their growth and expansion. 

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