Pradhan Mantri MUDRA Yojana

Pradhan Mantri MUDRA Yojana

  1. Introduction
  2. About the Scheme
  3. Types of loans
  4. Objectives
  5. Eligibility
  6. Sectors covered
  7. Implementation
  8. Significance
  9. Concern
  10. Need of hour

Introduction

  • Cabinet has approved 2% Interest Subvention approved on prompt repayment of Shishu Loans under Pradhan Mantri MUDRA Yojana for a period of 12 months.
  • The estimated cost of the Scheme would be approximately Rs. 1,542 crore which would be provided by the Government of India.
  • This Scheme is for implementation of one of the measures relating to MSMEs, announced under the Atma Nirbhar Bharat Abhiyan.

About the Pradhan Mantri MUDRA Yojana (PMMY) Scheme:

  • Launched in April, 2015.
  • The scheme’s objective is 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 upto 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:

  1. Shishu (up to Rs.50,000).
  2. Kishore (from Rs.50,001 to Rs.5 lakh).
  3. 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.

Micro finance institutions (MFI) monitoring and regulation:

  • With the help of MUDRA bank, the network of microfinance institutions will be monitored.
  • New registration will also be done.

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.

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.

Eligibility:

  • The scheme will be extended to loans which meet the following criteria – outstanding as on 31stMarch, 2020; and not in Non-Performing Asset (NPA) category, as per Reserve Bank of India (RBI) guidelines, on 31st March 2020 and during the period of operation of the Scheme.
  • The interest subvention would be payable for the months in which the accounts are not in NPA category including for the months that the account becomes a performing asset again, after turning NPA.

Sectors covered

  • To maximize coverage of beneficiaries and tailor products to meet requirements of specific business activities, sector / activity focused schemes would be rolled out.
  • To begin with, based on higher concentration of businesses in certain activities / sectors, schemes are proposed for:

Land Transport Sector / Activity –

Which will inter alia support units for purchase of transport vehicles for goods and personal transport such as auto rickshaw, small goods transport vehicle, 3 wheelers, e-rickshaw, passenger cars, taxis, etc.

Community, Social & Personal Service Activities –

Such as saloons, beauty parlours, gymnasium, boutiques, tailoring shops, dry cleaning, cycle and motorcycle repair shop, DTP and Photocopying Facilities, Medicine Shops, Courier Agents, etc.

Food Products Sector –

Support would be available for undertaking activities such as papad making, achaar making, jam / jelly making, agricultural produce preservation at rural level, sweet shops, small service food stalls and day to day catering / canteen services, cold chain vehicles, cold storages, ice making units, ice cream making units, biscuit, bread and bun making, etc.

Textile Products Sector / Activity –

To provide support for undertaking activities such as handloom, powerloom, chikan work, zari and zardozi work, traditional embroidery and hand work, traditional dyeing and printing, apparel design, knitting, cotton ginning, computerized embroidery, stitching and other textile non garment products such as bags, vehicle accessories, furnishing accessories, etc.

Implementation strategy:

The Scheme will be implemented through the Small Industries Development Bank of India (SIDBI) and will be in operation for 12 months.

Significance:

  • The Scheme has been formulated as a specific response to an unprecedented situation and aims to alleviate financial stress for borrowers at the ‘bottom of the pyramid’ by reducing their cost of credit.
  • It will incentivize people who will make regular repayments of loans.

Why the concern?

  • Non-performing assets ratio or bad loans as a percentage of MUDRA loans were at 2.68% in 2018-19, up 16 basis points from 2.52% in the previous year.
  • These loan NPAs were at 2.89% in 2016-17.
  • Of the 182.60 million MUDRA loans sanctioned, 3.63 million accounts defaulted as on 31 March.

Need of the hour:

  • Banks need to focus on repayment capacity at the appraisal stage and monitor the loans through the lifecycle much more closely.
  • The application of technology in finance has its own share of risks and challenges for regulators and supervisors.
  • Early recognition of these risks and initiating action to mitigate the related regulatory and supervisory challenges is key to harnessing the full potential of these developments.
  • Microfinance institutions must broaden their client outreach to reduce the concentration risk in their own interest and to serve a wider clientele base.
  • From a financial inclusion perspective they should also critically review their operations so other regions don’t remain underserved.