MUDRA: Strong start, but needs heavy lifting

The intent was noble and promised political dividends, but implementation has been somewhat patchy given that nearly four years have lapsed. This is how an industry veteran described the progress made till date under the Pradhan Mantri MUDRA Yojana, the Modi-led Government’s micro-loan scheme.

Counted as one of the pet projects of this dispensation, the scheme was launched in April 2015 to provide loans of upto ₹10 lakh to the non-corporate, non-farm small and micro enterprises. MUDRA loans are being handed out to entrepreneurs under three categories — Shishu (upto ₹50,000); Kishor (upto ₹5 lakh) and Tarun (upto ₹10 lakh)

Thanks to the heap of criticism around its working design, especially on the move to waive off mandatory collateral clause, the disbursals have not been that brisk, when viewed against a huge problem of unmet demand. NPA levels of about 7 per cent is certainly putting the system on a cautionary path. “The jury is still out on whether MUDRA has affected the banking system or not. But ratcheting up a 7 per cent NPA level in just four years of its existence is point to ponder and may warrant some disciplined approach to lending,” said a former chief executive of a public sector bank.

So what is the size of the MSME universe in India. By one estimate, there are between 50 and 60 million micro, small and medium enterprises operating in the country. These are leading contributors to the country’s Gross Domestic Product (GDP). Even today, roughly 40 per cent of India’s MSME lending is done through the informal sector, where interest rates are atleast twice as high as the formal market, according to a recent report jointly put out by Omidyar Network and Boston Consulting Group (BCG). Majority of Indian MSMEs are still mini businesses. About 96 per cent of the MSMEs have annual revenues of less than ₹1 crore. As much as 80 per cent have income less than ₹10 lakh.

“MUDRA has not been a roaring success. At the same time, it has not been a failure,” said an official from a leading industry chamber. One would do well to remember that micro units system in the country had faced the brunt of demonetisation unleashed in November 2016.

So what can be done by policy makers to widen the MUDRA net. One it must incentivise further formalisation of micro units. GST certainly helped formalisation of MSMEs, but did not largely impact the mini businesses as many of them were anyway lower than ₹20 lakh threshold.

Also, given the plummeting data costs, the policy makers should revamp MUDRA scheme so as to allow the participation of digital lenders with small unsecured loans to new-to-credit MSMEs. If favourable rates are assured for the smallest MSMEs, then formalisation will grow in the economy, the BCG-Omidyar report highlighted.

Other pet projects

Projects where the Government made some tangible progress include the Pradhan Mantri Awas Yojana, Pradhan Mantri Faisal Bima Yojana and Pradhan Mantri Jan Dhan Yojana. Swachh Bharat Abhigyan, although much promoted and talked about, did not result in expected attitudinal change in the Indian mindset.

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