Date: 11/04/2023

Relevance: GS-2: Government Policies and Interventions for Development in various sectors and Issues arising out of their Design and Implementation.

Relevance: GS-3: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment; Inclusive growth and issues arising therefrom; Financial Inclusion and Microfinance.

Key Phrases: MUDRA Scheme, Microfinance Loan, Financial Services, Non-Banking Financial Companies, Regulatory Framework, Financial Inclusion, Prepayment Penalty, Microfinance Institutions, Self-regulatory Organisation (SRO), Customer Protection.

Context:

• Recently, India’s Pradhan Mantri Mudra Yojana (PMMY) has successfully completed eight years of its launch.
  • Now it is appropriate time to glance back at the changes wrought by this mass credit saturation programme on different spheres of life including the sociocultural fabric of the country.

Key Highlights:

• The PMMY is one of the flagship schemes of the Union government to encourage self- employment.
  • The scheme targets micro and own-account enterprises that constitute a vibrant business ecosystem in India.
  • Micro enterprises are mostly engaged in manufacturing, processing, trading and services, and many of these units are single-ownership businesses.

Need of MUDRA Scheme:

• The country’s formal or institutional architecture was unable to reach out to them and meet their financial requirements.
  • These units were largely self-financed or reliant on either personal networks or moneylenders.
• With this gap kept in mind, the PMMY was floated with the objective to create an easily accessible bridge between a large unbanked sector and formal lenders.

PM MUDRA Scheme:

• Launched in 2015, PMMY provides collateral-free institutional credit up to ₹10 lakh, as provided by Member Lending Institutions (MLIs): i.e Scheduled Commercial Banks (SCBs), Regional Rural Banks (RRBs), Non-Banking Financial Companies (NBFCs) and Micro Finance Institutions (MFIs).
• Under the aegis of the PMMY, the Micro Units Development and Refinance Agency (MUDRA) created three sub-schemes that differ by the loan amount:
  • Shishu (for loans up to ₹50,000), Kishore (₹50,001–₹5 lakh) and Tarun (₹500,001–₹10 lakh).
  • The names Shishu, Kishore and Tarun also signify the stage of the beneficiary micro unit’s growth or development and its funding needs.
• Any individual who is otherwise eligible to take a loan and has a business plan for a small business enterprise can avail of credit under the scheme.
• Since its launch, the scheme has undergone numerous changes.
  • Its target area, for example, has been widened to maximize its positive economic impact.
  • Initially, the PMMY covered income- generating activity only in the sectors of manufacturing, trading and services.
    • However, since 2016-17, activities allied with agriculture and their support services promoting livelihoods have been brought under its ambit; since 2017-18, loans have been sanctioned for the purchase of tractors and power tillers; and from 2018-19, loans to buy two wheelers for commercial purposes have also been included.

Performance of MUDRA Scheme:

• Higher Disbursement :
  • Total disbursement under the scheme showed an average 33% growth in its first three years, indicating that its unique selling proposition was well received.
  • The outbreak of the covid pandemic and subsequent slowdown in economic activity impacted the demand for these loans.
    • During this phase, a special relief provision of the Reserve Bank of India (RBI) permitted all lending institutions to grant a moratorium of six months on the payment of all installments under the scheme.
  • After the economy’s re-opening, loan demand under the PMMY has gathered pace.
    • In most categories, disbursements have surpassed pre-covid levels.
    • Data as on 24 March 2023 puts the scheme’s cumulative disburse amount at ₹22.65 trillion.
    • The share of Shishu loans is the highest, at 40%, suggesting that the PMMY has largely supported first-time entrepreneurs.
• Economic Impact :
  • As per survey results of the ministry of labour and employment, the scheme had helped in generating 11.2 million net additional jobs during the period 2015 to 2018.
• Social Impact :
  • The social impact of the PMMY is a much deeper story and can be understood at three levels.
  • These three levels include the scheme’s impact on (1) broad social groups; 2) women; and 3) members of minority communities.
    • In terms of the first, the PMMY has benefitted all segments of Indian society: General, Schedule Caste/Tribe (SC/ST) groups and Other Backward Classes (OBCs).
    • The increasing participation of OBCs and SCs in availing these loans in recent times is an indication of the scheme’s outreach.
    • In its cumulative data since inception, the share of accounts held by women is as high as 69%, while the share of women in the sanction list is 45%.
    • The scheme has been able to cater to the requirements of minorities. Loans to members of minority groups touched an all-time high in 2022, with their overall share at 10%.
• Geographical Coverage :
  • Since the PMMY is a national scheme, its spatial dispersion is an important consideration from the point of view of balanced economic growth.
  • One of the objectives of India’s growth policy has been to bridge the divide between the thriving western and lagging eastern parts of the country.
  • A Herfindahl Concentration Index estimate of the number of accounts and disbursed amounts shows significant dispersion across states and products.
    • This indicates an impressive geographical coverage.
  • States such as Uttar Pradesh, Odisha and Bihar have recorded all-round gains from the PMMY.
  • West Bengal and Tripura have also seen a rise in their total share (and also in the Kishore and Tarun categories), indicating an eastward flow of beneficiaries.
  • Developed regions such as the national capital region, Maharashtra, Karnataka and Goa have seen their shares decline, even though they dominate the scheme in absolute terms.
• Overall, the PMMY has achieved its objectives of equitable and fair spatial distribution of benefits during its ninth year of operation by fostering self employment across social groups, doubling the participation rate of women over that observed in commercial-bank lending and boosting the participation of minority groups.

Need of Hour:

• Poverty, climate change and overexploitation of natural resources threaten sustainable development and SDGs.
  • Microfinance, with its bright and still unexplored future, has the potential to provide solutions.
• India is a vast country and many microfinance models are required.
  • Efficiency and flexibility to meet clients’ needs must be the differentiators.
• In the coming years, it is imperative that the PMMY reaps the benefits of 5G technology and e-commerce, even as Mudra cards are popularized further.
• Encouraging the registration and formalization of own-account enterprises could be another way of taking this scheme to new highs.

Conclusion:

• The MUDRA scheme aims to be an engine of transformation, which makes the micro-enterprises of this nation a potent instrument of employment and GDP growth.
  • It further adds to the vision of financial inclusion.

Source: Live-Mint

Mains Question:

Q."The PMMY, in a short span, has not only attacked and altered the course of the culture of poverty but infused a sense of vibrancy and can-do spirit in the Indian micro-credit ecosystem". Critically analyze the statement. (250 Words).