MUDRA SCHEME : Analysis

Analysing the MUDRA

Why in News?

In India many things revolve around mere perceptions, while getting into detail it often paint a different picture. It is a common misperception people have that large industries create more employment, though the truth is that “in India only 1.25 crore people find employment in large industries, whereas small enterprises employ 12 crore people”. In India, small businesses play an important role by providing employment to a large number of people. It is the second largest sector engaging uneducated and unskilled people after agriculture. Further, millions of low income earning group person aspire to set up small businesses but are unable to start, mostly due to credit limitations. Since banks do not find them eligible for credit loan. After identifying the importance of self-employment people and small business units, government of India launched MUDRA Yojana to address the financial and other constraints.

Recently PM interacted with Mudra Yojana beneficiaries from across the country through a video bridge. and claimed that MUDRA Yojana  has opened up new opportunities for youth, women and those who wanted to start or expand their businesses. Of the total loans disbursed, 74% of the beneficiaries were women and 55% belonged to SC/ST and OBC communities. He added the scheme has transformed the lives of the poor.

The MUDRA Scheme

Pradhan Mantri MUDRA Yojana (PMMY) is a scheme launched by the Hon’ble Prime Minister on April 8, 2015 for providing loans upto Rs.10 lakh to the non-corporate, non-farm small/micro enterprises. These loans are classified as MUDRA loans under PMMY. These loans are given by Commercial Banks, RRBs, Small Finance Banks, Cooperative Banks, MFIs and NBFCs.The scheme is based on the premisethat providing institutional finance to micro/small business units will turn these entities intoinstruments of growth, employment generation, and development.

MUDRA (Micro Units Development and Refinance Agency)
Shishu Loan Scheme
This is for starter or small entrepreneur, under this scheme the lending amount will be Rs. 50,000. That means If anyone wants to start a small business then he/she will get a loan cover up to Rs. 50,000/-	The rate of interest charged under this scheme by the banks is around 10% to 12%. And public sectors banks are charging at lower rate.
Kishor Loan Scheme
This scheme is meant for the mid-level business organizations. If you have set your business then you may receive a term loan from Rs. 50,000/- to Rs. 5 lakh from MUDRA for further expansion and growth.	The rate of interest is from14%to 17% depends on bank to bank.
Tarun Loan Scheme
This is the next level scheme and it for those business /manufacturing organizations who wish to have a large and better (automation) business setup. The loan provided in this scheme will cover a sum of rupees from Rs. 5 lakh to Rs. 10 lakh.	The rate of interest starts at 16%
It should be noted that at least 60% of the credit flows to Shishu Category Units and the balance to Kishor and Tarun Categories are ensured.

The funding supports from MUDRA are of four types:

A. Micro Credit Schemes:

Micro Credit Scheme is offered mainly through Micro Finance Institutions (MFIs), which deliver the credit upto Rs.1 lakh, for various micro enterprise activities. Although, the mode of delivery may be through groups like SHGs/JLGs, the loans are given to the individuals for specific income generating micro enterprise activity. The MFIs for availing financial support need to enroll with MUDRA by complying to some of the requirements as notified by MUDRA, from time to time.

B. Refinance Schemes for Banks:

Different banks like Commercial Banks, Regional Rural Banks and Scheduled Cooperative Banks are eligible to avail of refinance support from MUDRA for financing micro enterprise activities. The refinance is available for term loan and working capital loans, upto an amount of 10 lakh per unit. The eligible banks, which have enrolled with MUDRA by complying with the requirements as notified, can avail of refinance from MUDRA for the loan issued under Shishu, Kishor and Tarun categories.

C. Women Enterprise Programmes:

In order to encourage women entrepreneurs the financing banks / MFIs may consider extending additional facilities, including interest reduction on their loan. At present, MUDRA extends a reduction of 25bps in its interest rates to MFIs / NBFCs, who are providing loans to women entrepreneurs.

D. Securitization of Loan Portfolio:

MUDRA also supports Banks / NBFCs / MFIs for raising funds for financing micro enterprises by participating in securitization of their loan assets against micro enterprise portfolio, by providing second loss default guarantee, for credit enhancement and also participating in investment of Pass Through Certificate (PTCs) either as Senior or Junior investor.

For getting loan under MUDRA Yojana business units or entrepreneurs have to contact their nearest public or private banks or RRBs or other authorized NBFCs/MFIs with their business plan. After sanctioned the loan from MUDRA Yojana, Business units/ entrepreneurs will get a MUDRA Card like credit card which can be used for purchasing business raw materials etc. the Card’s limit will be 10% of the loan amount subject to maximum Rs. 10,000. Many entrepreneurs or small business units has availed finance under this scheme since its launching.

Nature of assistance: i. The primary role of MUDRA is to assist the micro and small business unit in the following cases: i. Need based term loan, ii. OD limit, iii. Composite loan to eligible borrowers for acquiring capital assets, iv. Loan for working capital, v. Loan for marketing. vi. Loan for technical up gradation for manufacturing firm. Viz. Latest machinery, Software tools, automation equipment etc.

Significance of PMMY

Growth of MSMEs will contribute to the development of ‘Make in India’ initiative. Launching bank like MUDRA will hugely benefit to small manufacturing units and self-employed individuals in rural and urban areas. PMMY scheme will contribute to the well-being of the individuals engaged in small scale industries which will positively affect the progress of the economy as a whole. MUDRA creates a vision of formalizing the informal and thereby funding the unfunded. Its role as an apex refinancer, providing low-cost finance is likely to be its USP, thereby hoping to fill a yawning gap in India’s microfinance space. These measures will greatly increase the confidence of our young educated and skilled workers who are able to become the first generation enterprises, and existing small businesses will be able to expand their activities. Just as banking the unbanked, MUDRA banks main aim is funding the unfunded.

Performance of MUDRA Scheme: Report Card

Among three categories, Shishu loans had the highest share in terms of number of accounts and which was followed by Kishor and Tarun. The share of Kishor loans fell by 1.66% in FY 2016-17 compared to FY 2015-16. In contrast, the share of Shishu and Tarun loans went up marginally in FY 2016-17, as compared to FY 2015-16.

The average loan size under PMMY during FY 2016-17 increased to Rs 45,471.98 as against Rs 39,405.28 crore in the previous year. Similarly, the average loan size under Shishu category at Rs 23,317 has been higher than that of Rs 19,411 in the previous year. There is little change in the average loan size under Kishor and Tarun in FY 2016-17 with respect to FY 2015-16.

Among the Public Sector Banks, State Bank of India with Rs 16,746 crore for 11.54 lakh accounts topped the table. SBI along with its other associate banks (which have since merged with SBI) have sanctioned an amount of  Rs22,599 crore for about 13.56 lakh accounts and accounted for 12.52% of the total sanctions. SBI was followed by Punjab National Bank and Canara Bank, with Rs 6,228 crore and Rs 5,301 crore respectively. The private sector banks also performed very well with a sanction of Rs 39,042.60 crore during the year, recording 91% growth. The Bandhan Bank, which converted itself to a universal bank from MFI, topped the list with Rs 14,762 crore, which is more than one third of the share of the private sector banks. The other major contributors in the private sector banks category are HDFC Bank with Rs 5,523 crore, IndusInd Bank with Rs 5,456 crore and ICICI Bank with Rs 5,168 crore.

The Regional Rural Banks sanctioned Rs 12,010 crore under PMMY during the year and their share was only about 7%. Among these banks, two banks viz. Pragathi Krishna Gramin Bank with Rs 2,317 crore andKerala Gramin Bank with Rs 2,125 crore were the major contributors. Madhya Bihar Gramin Bank sanctioned Rs 809 crore, which was followed by Karnataka Vikas Gramin Bank with Rs 759 crore and PaschimBangaGramin Bank with Rs 403 crore. A new category of Banks viz. Small Finance Banks, emerged during the year. Most of these SFBs were the erstwhile MFIs converted into SFBs.

The participation of women was very high under PMMY during FY 2016-17 also with 73% of the loan accounts and 44% of loan amount sanctioned being the share of women borrowers. The share of women in the Shishu category is at 78%, in terms of number of accounts under Shishu, and it formed 98% of the loan accounts of women borrowers. This is mainly due to the high share of MFIs in Shishu loans, where women are the major beneficiaries of micro finance loan. The corresponding percentage of MUDRA loan account of women was slightly higher at 79% during FY 2015-16.

The participation of the weaker sections of the society in the PMMY programme was at 57%, in terms of loan accounts, and 38% in terms of loan amount sanctioned. The share of SC, ST and OBC categories were 18%, 5% and 34%, respectively, in terms of the loan accounts sanctioned. Here again, the major portion of their share belongs to Shishu category.  The Minority category of borrowers accounted for 13% and 11% in terms of number of accounts and amount share, respectively in FY 2016-17.

Observations

As per the research done by SKOCH Group on MUDRA scheme, MUDRA Yojana has led to the creation of a total number of 54,479,763 jobs. This includes 37,753,217 direct jobs and 16,726,545 indirect jobs. Out of the total jobs created, 47.77 per cent were created under the Scheduled Castes, Scheduled Tribes and Other Backward Class categories.

The MUDRA Yojana has been found to be the best performing scheme till date undoubtedly even from the perspective of creating entrepreneurship and providing institutional working capital—which small entrepreneurs as well as enterprises in the unorganised sector never had access to. Still, there are certain areas, which need to be taken care of. For instance, approximately 70 percent of disbursals are concentrated in 10 states and efforts must be taken to really penetrate into the ‘hardto- reach-areas’ since the segment of population, which is targeted has vast untapped potential but needs funding support to match its aspirations. In addition, SKOCH believes that stabilisation of Cloud, Aadhar and Mobile (CAM) is expected to improve MUDRA loans in a big way. One of the areas where MUDRA has been criticized initially is slow progress of RuPay cards for easy transactions of loan money. This has to be taken care of at present to match the number of accounts and corresponding disbursal of funds. There are laudable efforts in terms of expanding MUDRA’s reach by sector and one such effort by the government is formulating a new model under the MUDRA Yojana for providing credit to the handloom sector—benefiting 5 lakh weavers— which can be emulated by other relevant ministries.

From the perspective of social as well as financial inclusion, MUDRA can be termed as a successful initiative. Its focus has been on the underprivileged sections of society. Nearly half of the beneficiaries under the scheme belong to underprivileged class. This includes 20 per cent of the SCs, 5 per cent STs and 35 per cent from Other Backward Classes. Over 70 per cent beneficiaries are women. This clearly indicates that the scheme is well targeted.

The MUDRA Yojana has had a very positive impact on the rural economy. This has led to an upswing in the rural consumption in the past two years. Our study reveals that there is around 30-40 per cent increase in rural consumption driven by MUDRA loan scheme. Increase in jobs and improved economic activity has had to a positive socio-economic impact.

Overall, PMMY has been a success so far, in creating new jobs and entrepreneurs across the country and is expected to become one of the fastest vehicles to carry financial and social inclusion supported by policy and technology tools.

Conclusion

Government of India started MUDRA scheme to formally support small scale enterprises so that they can participate in mainstream financial activities and directly contribute to Indian economy. Scheme is well accepted by banking and other financial institutions. With MUDRA, certain things have changed and it is helping more and more people to become selfemployed. If the MUDRA scheme works well in future, then there will be increased market of the domestic/ indigenous products. When the products born out of the MUDRA scheme will get foreign currency in the country which will improve the stand of the Indian Rupees in the international currency market. The Mudra Scheme is trying its best to improve the status of women and other backward sections of the society especially those who are not well educated and semiskilled. The financial support in the form of various loans encouraging them to start new ventures and thereby empowering them. Its impact in developing a strong economy will be seen in the coming years.