There has been a revolution taking place in the formal lending space for micro enterprises since 2015. While Jan Dhan is an established shibboleth in banking which has obvious benefits when it comes to direct benefit transfers, the lending side has also been part of the focus of the government to ensure that credit percolates down the chain.
The tool used to move closer to the goal has been the Pradhan Mantri MUDRA Yojana (PMMY). Started in 2015, the scheme will be celebrating a decade of uplifting the quality of life through promotion of entrepreneurship among the disadvantaged classes through bank credit. The MUDRA scheme was launched with the idea of spreading financial inclusion among entrepreneurs in the non-farm sector (but include allied agricultural activities).
The scheme was launched with three variants based on credit offtake: Shishu for loans of Upto Rs 50,000, Kishore for loans above Rs 50,000 upto Rs 5 lakhs and Tarun for loans above Rs 5 lakh upto Rs. 10 lakhs. Another variant of Tarun plus for loans above Rs. 10 lakh upto Rs. 20 lakh was introduced in last year’s budget. Besides scheduled commercial Banks, NBFCs and MFIs also lend under MUDRA scheme thereby significantly increasing the coverage specially for smaller ticket size loans. The loans are given both as term loans and cash credit based on the requirements of the project.
The ethos of this scheme was unique where lenders would extend loans without collateral to micro enterprise. This would cover vegetable vendors, kiosk shops, salons, rudimentary processed foods, poultry etc. It would exclude farm loans or anything to large enterprise. Given the proclivity of individuals especially in the hinterland to take up such enterprises for a livelihood, the scheme aimed to cover large number of people. The goal was to encourage self—employment driven entrepreneurship.
The progress in these 10 years has been quite remarkable which sets a template which other countries especially in the developing world can follow. More than 52 crore loans have been sanctioned since the launch of the scheme. More importantly the share of women in this scheme is around 2/3 which is a big step towards not just providing support but also empowering them.
The other interesting fact is that more than 20% of loans i.e.10.7 crore have been sanctioned to new entrepreneurs. In terms of overall amount of money sanctioned, the numbers are impressive. Over the last ten years, total cumulative sanctions were Rs 33.14 lakh crore of which Rs 32.41 lakh crore was disbursed. Women accounted for 44% of sanctioned amount and first-time entrepreneurs 31% of total sanctioned amount.
Credit side Financial inclusion meant reaching out to the more disadvantaged groups which would not normally have access to formal finance. Among these groups, there would be a tendency to rely on unofficial channels like moneylenders for finance. By weaving this segment into the formal financial channels, a major challenge has been overcome.
There has also been a push factor with lenders pressing on the pedal to spread the MUDRA scheme. The three main target beneficiaries were women, first time entrepreneurs and socially weaker sections. This is something which should continue as the country strives to empower these classes.
The government as well as banks need to spread awareness about this scheme so as to ensure that people migrate from unofficial channels to formal credit provided by Banks, NBFCs and MFIs. The beneficiaries also need to be made sensitive to their credit scores to make facilitation of these loans easier. This is because both lack of knowledge of the scheme for the borrower and the lack of knowledge of credit history for the lender has led an information asymmetry in the system.
This is being addressed by lenders with the use of technology and the results have been encouraging. But for sure, there is a long way to go as prospective beneficiaries need to be tapped and current beneficiaries need to get into the next orbit of self-sustained growth in income on the back of facilitative credit.
(The Author is Chief Economist, Bank of Baroda. Courtesy: PIB)
