8th Anniversary of Pradhan Mantri MUDRA Yojana (PMMY)

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    In News

    • The Prime Ministerhas lauded Mudra Yojana on completion of 8 years. 
      • PM MudraYojana has played a vital role in funding the unfunded and ensuring a life of dignity as well as prosperity for countless Indians. 

    Pradhan Mantri MUDRA Yojana (PMMY)

    • About: 
      • The Pradhan Mantri MUDRA Yojana (PMMY) was launched on 8th April 2015.
      • Any Indian Citizen who has a business plan for a non-farm sector income generating activity such as manufacturing, processing, trading or service sector and whose credit need is less than Rs. 10 lakh can approach either a Bank, MFI, or NBFC for availing of Micro Units Development & Refinance Agency Ltd. (MUDRA) loans under Pradhan Mantri Mudra Yojana (PMMY).
    • Aim: 
      • To facilitate easy collateral-free micro credit of up to Rs10 lakh to non-corporate, non-farm small and micro entrepreneurs for income generating activities. 
    • Features:
      • The loans under PMMY are provided by Member Lending Institutions (MLIs), i.e., Banks, Non-Banking Financial Companies (NBFCs), Micro Finance Institutions (MFIs) and other financial intermediaries.
      • The loans have been divided into three categories based on the need for finance and stage in maturity of the business.  These are Shishu (loans up to Rs 50,000/-), Kishore (loans above Rs 50,000/- and up to Rs 5 lakh), and Tarun (loans above Rs. 5 lakh and up to Rs. 10 lakh). 
      • The rate of interest is decided by lending institutions in terms of RBI guidelines.  In the case of a working capital facility, interest is charged only on money held overnight by the borrower.
      • Interest Subvention of 2% on prompt repayment of Shishu loans extended under PMMY for a period of 12 months to all eligible borrowers’.
    • Credit Guarantee Fund for Micro Units (CGFMU):
      • Credit Guarantee Fund for Micro Units was set up in January 2016 under the aegis of the National Credit Guarantee Trustee Company Ltd. (NCGTC), a wholly-owned company of Government of India, to provide guarantee to:
      • Loans extended to eligible micro units under Pradhan Mantri Mudra Yojana (PMMY) up to Rs. 10 lakh, by Banks/ Non-Banking Financial Companies (NBFCs)/ Micro Finance Institutions (MFIs)/ other financial intermediaries;
      • Overdraft loan amount of Rs. 5,000 (enhanced to Rs 10,000 in Sep, 2018) sanctioned under Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts; and
      • Self Help Group (SHG) portfolio between R10 lakh to Rs. 20 lakh (w.e.f. 01.04.2020).
    • Three pillars of the scheme:
      • Banking the Unbanked
      • Securing the Unsecured
      • Funding the Unfunded

    Significance 

    • The scheme has enabled easy and hassle-free access to credit to micro-enterprises and has helped a large number of young entrepreneurs establish their businesses.
    • The PMMY scheme has helped in the generation of large-scale employment opportunities at the grassroots level and also has proved to be a game changer while boosting the Indian economy.
    • The growth of MSMEs has contributed massively to the “Make in India” programme as strong domestic MSMEs lead to increased indigenous production both for domestic markets as well as for exports. 

    Achievements under Pradhan Mantri Mudra Yojana (PMMY) as on 24.03.2023

    • About Rs. 23.2 lakh crore has been sanctioned in 40.82 crore loan accounts. 
    • About 68% of accounts under the scheme belong to women entrepreneurs and 51% of accounts belong to entrepreneurs of SC/ST and OBC categories. 
    • This demonstrates that easy availability of credit to the budding entrepreneurs of the country has led to innovation and sustained increase in per capita income.”

    Challenges faced by the Scheme

    • Rise in non-performing assets or bad loans
    • Lack of financial literacy among beneficiaries leading to defaults
    • There have also been increasing instances of frauds reported at public sector banks.
    • Less outreach to rural entrepreneurs
    • Loan amount of up to Rs. 10 lakhs, is inadequate for many small enterprises.
    • Shoddy appraisal systems and end-use monitoring practices at PSBs appear to be one of the key reasons for the quick deterioration in the quality of loans.

    Conclusion

    • Overall, MUDRA is a step in the right direction for funding the unfunded, although the government shall set up a powerful monitoring and grievance remedy mechanism for the problems arrived under the scheme.

    Source: PIB