What started with a clarion call from the Prime Minister to understand the ‘energy’ of nation’s entrepreneurial workforce, MUDRA Yojana has ever since been promoting small businesses and fuelling job growth.
Government’s flagship scheme Pradhan Mantri MUDRA Yojana was launched in 2015 and is being perceived as an elixir for the MSME sector, accounting for 90% of total number of enterprises and also 90% of non-agriculture employment whose growth had been hindered due to constraints in access to finance. The scheme provides non-farm loans up to Rs 10 lakh to small entrepreneurs. Considering the latest survey results, around 11 crore people are dependent on self-enterprise or in the MSME space, further underscores the need for financial push and support.
However, skeptics have been, from the very beginning, doubting the efficacy of the scheme and its impact on rising NPAs owing collateral free nature of the loans extended. The recent report on MUDRA loans leading to NPAs up to Rs 11,000 crore, however, needs to be looked from a broader perspective.
Since inception, a total of Rs 7,17,842.16 crore have been disbursed as loans under MUDRA (as per official website). Now considering Rs 11,000 crore NPAs under MUDRA, which is just 1.5 % of the total disbursed amount, a minuscule percentage when compared to the NPA burden from lending to large companies. Also, According to the 2017-18 annual report of PMMY, while gross non-performing assets (NPA) across all sectors in the country crossed 10% in fiscal 2017-18, the NPA level under PMMY was only 5.38% as on March 31, 2018. It would be unjustified and short-sighted to dub the scheme as a failure and tightening its noose and scuttling growth of microenterprises.
Considering RBI report released last year in March, there were 4,387 large borrowers accounting for Rs 8.6 Lakh crore or 90% of NPAs of the banking sector. The entire amount lent under MUDRA is less than that! Touting MUDRA a failure on those accounts is loosely interpreted.
A large number of risk portfolios may be directly interpreted as a higher risk of loans going bad. However, it is important to understand that it is the overall value of money under risk is what is of primary concern to the banking sector.
The scheme has a huge potential of job generation and has been a key instrument for creating livelihoods and jobs for the lowest socio-economic segments of our society today. Not only empowering the loan seeker, but job seekers are also turned into job creators by leading a multiplier impact on the market. As per our research, for every loan disbursed under MUDRA about 1.3 jobs have been generated. On the other hand, huge loans given to large industries employing fully mechanized production methods have less focus on employment. This makes MUDRA an imperative tool for leveraging our demographic dividend and generating employment. A cost-benefit analysis of NPA rise with the huge socio-economic ramifications of unemployment and funding constraints to the MSME sector has to be carried out to take a vantage view of the situation.
Besides, MUDRA is instrumental in weaning small borrowers from private money lenders, lending money at usurious rates. Bringing the unorganized sector under the net and enabling financial flows has been the championing cause of the scheme.
Reports also indicate that even as today up to 40% of MSME funding is through informal channels. However, the sector is moving towards formalization through measures such as demonetization, introduction of GST and digital platform under India Stack along with easy and transparent lending terms under MUDRA. Certain measures such as conducting due diligence on the business plan in absence of collaterals would help in checking small loans going bad. A certain amount of mentorship while extending loans is also important to ensure its viability.
There an element of risk in every lending, but in case of MUDRA, the risk is much lower. It is RBI’s role to caution any emerging trend but a knee-jerk policy reaction is not called for without a valid cost-benefit analysis and a broader perspective.
(This article is written by Vidushi Sahani)