Mudra loan: Fund the deserving

By OEM Update Editorial June 18, 2019 2:07 pm IST

Announced with the theme ‘funding the unfunded’, Mudra loan was launched after identifying the importance of self-employment people and small business units. However, the red flag alert from RBI has been raising waves of concerns. A quick analysis by the industry experts discuss what they think of the Mudra loan and the concern hovering over NPAs

India is a land of talented and budding youngsters, held back just because they have neither the opportunity nor the finances to show the world what they have in store. With MUDRA, a lot of skilled and creative brains were to be empowered to take India to a whole new level on the international frontier. Until now, most of the SME/MSMEs out there used to face credit crunch issues as non-profit micro financing institutes often failed to provide capital to small businesses and commercial banks abstained from investing in them as they lacked performance history and legacy, owing to their newness.

Mudra (Micro Units Development and Refinance Agency Limited) Bank, formed in April 2015 by the then Government of India’s Union Budget aimed to provide integrated financial support to the SME/MSME. After identifying the importance of self-employment people and small business units, the Government of India launched MUDRA Yojana to address the financial and other constraints that has been continuously persisting in the Indian industries. The main objectives of Mudra Bank were to encourage entrepreneurs and small business units to expand their capabilities and operations, to reduce over indebtedness and to provide formal credit system.

The far reaching effect of the scheme can be seen in how it increases the confidence of educated and skilled individuals who will now get the chance of becoming first generation entrepreneurs and existing start-ups will also be able to expand their business through this capital. However, this is just one part of the coin.

The other side of the coin
With RBI raising the red-flag on the spike in non-performing assets (NPAs) under the government’s flagship scheme to support micro enterprises in the country, MUDRA loan is right now hogging the headlines for all the ‘not so good’ reasons. The key objective behind the scheme was to refinance loans without collaterals of upto 10 lacs that are provided by lending institutions to non-corporate small borrowers, for income-generating activities in the non-agricultural segment such as manufacturing and servicing.

Bad loans under Mudra Yojana have jumped almost 53 per cent to ₹14,930.98 crore during the first nine months of the current financial year 2018-19, as compared to 9,769.99 crore reported in last year (as per reports). The small business loans disbursed under the MUDRA loan have fallen short of the target set for 2018-19. Against a target of ₹3-lakh crore, only ₹2.73-lakh crore was disbursed as on March 31, 2019, according to government data.

‘X’ amount to ‘Y’ number, but what does ‘Y’ does with the ‘X’ amount?

The way ahead!
Certain things would definitely change with Mudra, helping more and more people to become self-employed. This would also lead to an increased market of the domestic/ indigenous products, capitalising the export market. The financial support in the form of various loans encourages people to start new ventures and thereby empowering them. Its impact in developing a strong economy will be seen in the coming years. The specific or more specialised financial institution for serving the credit need of the micro enterprises including SME/MSMEs is the need of the hour.