Context

Recently, Banks and financial institutions have sanctioned ?23.2 lakh crore to more than 40.82 crore beneficiaries under the Mudra Yojana.

About the news:

• Banks and financial institutions have sanctioned ?23.2 lakh crore to unfunded beneficiaries.

About 68% of accounts under the scheme belong to women entrepreneurs, and 51% of accounts belong to entrepreneurs of SC/ST and OBC categories.

About the PM Mudra Yojana:

• It was launched in April, 2015.
• Aim: To refinance collateral-free loans given by the lenders to small borrowers.
• Banks and MFIs can draw refinance under the MUDRA Scheme after becoming member-lending institutions of MUDRA.
• Mudra Loans are available for non-agricultural activities up to Rs.10 lakh and activities allied to agriculture such as Dairy, Poultry, Bee Keeping etc., are also covered.
• Mudra’s unique features include a Mudra Card which permits access to Working Capital through ATMs and Card Machines.
• There are three types of loans under PMMY:
  • Shishu (up to Rs.50, 000).
  • Kishore (from Rs.50, 001 to Rs.5 lakh).
  • Tarun (from Rs.500, 001 to Rs.10, 00,000).
• Objectives of the scheme:
  • Fund the unfunded: Those who have a business plan to generate income from a non-farm activity like manufacturing, processing, trading or service sector but don’t have enough capital to invest can take loans up to Rs.10 lakh.
  • Integration of Informal economy into Formal sector: It will help India also grow its tax base as incomes from the informal sector are non-taxed.
  • Micro finance institutions (MFI) monitoring and regulation: With the help of MUDRA bank, the network of microfinance institutions will be monitored.
  • Promote financial inclusion: With the aim to reach Last mile credit delivery to micro businesses taking help of technology solutions, it further adds to the vision of financial inclusion.
  • Reduce jobless economic growth: Providing micro enterprises with credit facility will help generate employment sources and an overall increase in GDP.
• Eligibility:
• Any Indian Citizen who has a business plan for a non-farm sector income generating activity such as manufacturing, processing, trading or service sector and whose credit need is less than Rs.10 lakh can approach either a Bank, MFI, or NBFC for availing of Micro Units Development & Refinance Agency Ltd. (MUDRA) loans under Pradhan Mantri Mudra Yojana (PMMY).

Performance of the MUDRA Loans:

• MUDRA was introduced by keeping financial inclusionat the core of the scheme. The scheme aimed at prioritizing marginalized sections of the society such as women, STs and SCs.
• Out of the 12 crore beneficiaries, 28 per cent or 3.25 crore are first-time entrepreneurs. About 74 per cent or 9 crore, borrowers are women and 55 per cent belong to the SC/ST and OBC category.
• Disbursement to STs and SCs remained low: The general category entrepreneurs across the States dominate the loan chart, receiving 45 per cent of loans followed by Other Backward Castes (23 per cent), Schedule Caste (18 per cent) and Scheduled Tribes (5 per cent).
• Smaller Stateshas not received any major boost: The growth of entrepreneurship in the non–corporate small business sector (NCSB) in smaller States has not received any major boost under the scheme.
• Data shows that States that already have higher Credit–Deposit (C-D) ratios are the ones reaping the benefit of the scheme.
• Less disbursement to NE states: While six large States led by Tamil Nadu have received over 50 per cent of the Rs.6.82-lakh crore MUDRA loans disbursed, a majority of North-East States and Union Territories have not received even 1 per cent of the total MUDRA loans.

About 60 per cent of the total loan sanction comes from these top six States.

• Pool of proxies: The Mudra scheme is designed such as to give preference to women entrepreneurs. This has led to creation of a pool of proxies, who claim to turn entrepreneurs.

Way forward:

• Alternative channels: MUDRA should enhance the role of alternative channels such as microfinance institutions (MFIs) and other intermediary organisations in reaching out to end-users by leveraging additional funds.
  • The small ticket size loans of less than 10 lakh require a very different expertise in terms of managing the loans as well as making it a success.
• New institutional infrastructure: Similarly, the RBI has created a new institutional infrastructure in the form of Small Finance Banks, which specialise in small ticket size loans.
  • In fact, the entire organisation is groomed to handle and manage small borrowers. The cooperative banks are also best suited to operate in small loan segment.
• Formalization of micro units: The policy makers should widen the MUDRAnet and incentivize further formalization of micro units. The revamping of the scheme should allow the participation of digital lenders with small unsecured loans to new-to-credit MSMEs.
• Popularise digital payments: Efforts should be made to popularise digital payments like BHIM (Bharat Interface for Money) and JAM (Jan Dhan-Aadhaar-mobile) trinity to promote cashless transactions for using the MUDRA loans.