THE CONTEXT: The Pradhan Mantri MUDRA Yojana (PMMY) has significantly impacted India’s microfinance landscape by providing accessible credit to small and micro enterprises. Since its launch in 2015, the scheme has facilitated over 34.93 crore accounts, with a total credit support of ₹18.39 lakh crore.
KEY FEATURES AND PERFORMANCE:
- The PMMY is structured into four categories to address different business needs: Shishu (up to ₹50,000), Kishore (₹50,000 to ₹5 lakh), Tarun (₹5 lakh to ₹10 lakh), and the newly introduced Tarun Plus (₹10 lakh to ₹20 lakh). In the financial year 2023-24, the scheme sanctioned ₹220,662.40 crore with a disbursement efficiency of 97%, reflecting its robust implementation.
- According to the RBI’s Financial Stability Report (2024), 68% of beneficiaries are first-time entrepreneurs, and 78% of loans are processed within 15 days. The default rate remains below 4%, showcasing effective risk management.
| LOAN CATEGORIES | AMOUNT SANCTIONED |
| Shishu | Up to ₹50,000 |
| Kishore | ₹50,000 to ₹5 lakh |
| Tarun | ₹5-10 lakh |
| Tarun Plus | ₹10-20 lakh |
IMPLEMENTATION STRUCTURE:
- Implemented through Member Lending Institutions (MLIs).
- Includes commercial banks, RRBs, SFBs, NBFCs, and MFIs.
- Credit Guarantee Fund for Micro Units (CGFMU) coverage.
FINANCIAL YEAR 2023-24 ACHIEVEMENTS:
- Women borrowers: ₹2.22 lakh crore disbursed across categories.
- Minority borrowers: ₹45,088.23 crore total disbursement.
- New entrepreneurs: 1.30 crore accounts with ₹1.58 lakh crore sanctioned.
LOAN CATEGORIES AND PERFORMANCE:
The scheme’s four-tiered structure has shown significant impact:
- Total sanctioned amount reached ₹220,662.40 crore in 2024-25.
- Disbursement efficiency stands at 97% with ₹214,364.71 crore released.
- Shishu category leads with ₹148,937.3 crore sanctions in 2023-24.
CURRENT IMPLEMENTATION CHALLENGES:
- Long loan processing time: The lengthy loan processing time remains a significant hurdle for MUDRA applicants. According to a 2023 study by the Small Industries Development Bank of India (SIDBI), the average processing time for MUDRA loans is 25-30 days, with some cases extending up to 45 days.
- High processing fees: While PMMY aims to provide affordable credit, high processing fees continue to burden borrowers. The Parliamentary Standing Committee on Finance (2024) reported that processing fees for MUDRA loans can range from 0.5% to 2% of the loan amount. For small borrowers, especially in the Shishu category, these fees can significantly increase the effective cost of borrowing.
- Interest rate concerns: Interest rates on MUDRA loans, while generally lower than informal sources, are still considered high by many borrowers. The RBI’s Expert Committee on MSMEs (2023) reported that effective interest rates on MUDRA loans can range from 8% to 12% for most borrowers, with some paying even higher rates.
- Existing debt burden: Many potential MUDRA borrowers are already burdened with existing debts, often from informal sources. A 2024 survey by the National Sample Survey Office (NSSO) found that 47% of micro-enterprises had outstanding loans, with 62% of these from informal lenders.
- Limited awareness: Despite the scheme’s widespread implementation, awareness remains a challenge, particularly in rural and semi-urban areas. The Parliamentary Standing Committee on Finance (2024) noted that only 38% of potential beneficiaries in rural areas were fully aware of the MUDRA scheme and its benefits.
GOVERNMENT INITIATIVES TO ADDRESS CHALLENGES
- Online application portals: The introduction of online portals like PSBloansin59minutes and Udyamimitra has significantly streamlined the loan application process. According to SIDBI data, as of 2024, over 3 million MSME loan applications have been processed through these portals, with an average turnaround time of 7-10 days.
- MUDRA Card for flexible credit access: The MUDRA Card, a RuPay debit card linked to a working capital account, has enhanced flexibility in credit access. As of March 2024, over 7 million MUDRA Cards have been issued, allowing borrowers to withdraw funds as needed, reducing the burden of interest on unused capital.
- MUDRA Mitra mobile application: Launched in 2023, the MUDRA Mitra mobile app aims to improve awareness and accessibility of the scheme. The app provides information on MUDRA loans, nearby lenders, and even facilitates preliminary loan applications. NITI Aayog reports that the app has contributed to a 30% increase in MUDRA loan inquiries from rural areas.
- Interest subvention scheme: This scheme provides a 2% interest subsidy for prompt payees. The Ministry of Finance reports that as of 2024, over 20 million borrowers have benefited from this scheme, with the average effective interest rate for Shishu loans reduced to 5-6%.
THE WAY FORWARD:
- Strengthen digital infrastructure: The NITI Aayog, in its 2024 report on “Digital Financial Inclusion,” emphasizes the critical role of robust digital infrastructure in expanding the reach and efficiency of PMMY. The report recommends Enhancing rural connectivity to ensure seamless access to digital financial services. Promoting the use of AI and machine learning for faster and more accurate credit assessments. Implementing blockchain technology for secure and transparent loan disbursement and tracking.
- Enhanced monitoring mechanisms: The Comptroller and Auditor General (CAG) of India, in its 2023 performance audit of PMMY, stressed the need for stronger monitoring mechanisms. Implementing a real-time monitoring system to track loan utilization and repayment. Establishing a centralized database of borrowers to prevent multiple borrowings and potential misuse. Regular third-party audits to ensure compliance with scheme guidelines.
- Capacity building of borrowers: The Parliamentary Standing Committee on Finance, in its 2024 report on MSME financing, emphasized the importance of capacity building for MUDRA borrowers. Mandatory financial literacy programs for all MUDRA loan applicants. Providing mentorship and business development support to borrowers. Encouraging the formation of borrower groups for peer learning and support.
- Improved coordination between stakeholders: The Reserve Bank of India’s Internal Working Group on MSME Credit (2024) highlighted the need for better coordination among various stakeholders. Creating a unified platform for all MSME-related schemes to avoid duplication and enhance synergies. Establishing regular coordination meetings between banks, government agencies, and industry associations. Developing a common set of performance indicators for all stakeholders involved in PMMY implementation.
- Focus on northeastern regions: NITI Aayog’s regional development report (2024) emphasized the need for special focus on the northeastern regions. Tailoring MUDRA schemes to suit the unique socio-economic conditions of the Northeast. Providing additional incentives for banks to increase their presence in remote northeastern areas. Collaborating with local institutions and self-help groups to enhance outreach.
THE CONCLUSION:
The expansion of PMMY’s loan limit to ₹20 lakh marks a significant evolution in supporting India’s micro-enterprises. NITI Aayog projects that by 2025, PMMY could help create 10 million new entrepreneurs, driving economic growth and financial inclusion. With job creation reaching 1.12 crore new opportunities and women entrepreneurs constituting 70% of beneficiaries.
UPSC PAST YEAR QUESTION:
Q. Pradhan Mantri Jan-Dhan Yojana (PMJDY) is necessary for bringing unbanked to the institutional finance fold. Do you agree with this for financial inclusion of the poorer section of the Indian society? Give arguments to justify your opinion. 2016
MAINS PRACTICE QUESTION:
Q. “The Pradhan Mantri MUDRA Yojana has been a game-changer for financial inclusion in India, but significant challenges remain in its implementation.” Critically analyze.
SOURCE:
https://pib.gov.in/PressReleasePage.aspx?PRID=2069170
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