India File

Self-employment is a mantra, but is it working?

Surabhi | Updated on July 02, 2018 Published on July 02, 2018

The pejorative jokes on pakoda sellers apart, the Centre has been keen on pushing self-employment in a country where it is virtually impossible to ‘employ’ everyone. Hence, a lot hinges on the performance of the government’s Micro Units Development and Refinance Agency (MUDRA) scheme, which holds out a ray of hope for the beleaguered small industries.

A boon to some

“The loan has inspired me to give back something to my country,” says Umesh Kansal, who took a loan of ₹10 lakh under MUDRA to set up his own manufacturing unit of medical diagnostic kits.

Delhi-based Kansal says that getting the loan under the scheme from Punjab National Bank was a simple process, which took about six days and did not require a guarantee or too much documentation.

Since its launch in April 2015 by Prime Minister Narendra Modi, over 12.85 crore loans have been sanctioned, involving more than ₹6 crore. “The very poor can get loans from micro-finance institutions and self-help groups while the large companies are easily serviced. It is the middle and lower-middle class that misses out,” says an official with MUDRA.

Agrees Ajay Kumar, a beauty salon owner in Reasi, Jammu, who took a loan of ₹1.5 crore under the scheme to buy more equipment and upgrade his services.

“My salon was already running but I needed capital for modifications. My bank referred me to this scheme,” he says.

A recent quarterly report by SIDBI and TransUnion CIBIL has found the micro, small and medium enterprises the most vibrant in the country, accounting for ₹11.7 crore or 23 per cent of the commercial credit exposure. Micro enterprises with credit exposure of less than ₹1 crore had registered a credit growth of 20 per cent between December 2016 and December 2017.

It is this segment of micro enterprises that the MUDRA scheme focusses on and offers loans up to ₹10 lakh to entrepreneurs to start and expand their businesses in sectors including retail, trading, manufacturing and agriculture-related allied activities and, in turn, create more employment.


Officials say NPAs remain low at 5-6 per cent. At present, there are close to 200 partner institutions, including public and private sector banks, MFIs and NBFCs, participating in the MUDRA scheme.

“A lot of our members have got funds from MUDRA and it is proving to be useful to small entrepreneurs,” states Jayshree Vyas, Chair Sa-Dhan and Managing Director, Sewa Bank, noting that MFIs already have a network of clients. MUDRA is also tapping into the network of small finance banks such as AU Small Finance Bank and payments banks to provide loans to SMEs and first-generation entrepreneurs.

Not entirely rosy

But there are dissonant voices. After three years of the scheme, there have been questions on its efficacy and debates about the number of first-generation entrepreneurs and jobs created. In the first year, about 36 per cent of all loans were given to new entrepreneurs.

But neither the Small Industries Development Bank of India nor MUDRA has any more numbers to share.

Says Hari Das, CEO, Pixint, a user experience solutions provider in Chennai: “Amidst all the clamour around Mudra loans and promoting new ventures, the demands of those small-sector entrepreneurs who already provide and create jobs are getting lost.”

His small firm employs over 50 people but is struggling to scale up in spite of doing good business and providing quality content.

“Banks just don’t want to attend to our basic demands. For instance, if I need an overdraft of, say, ₹1 crore, even a public sector bank, which can easily track my company’s record and my performance as a borrower, will hesitate. And the collaterals demanded are, in some cases, shocking and bizarre,” Das laments.

The data on loans disbursed has come under question. Former Chief Statistician, Pronab Sen, says: “I don’t believe the MUDRA data. Banks have been lending to the MSMEs for a long time. It is routine part of bank lending. Now that is being reclassified as MUDRA loans.”

“The banks have put in all systems to facilitate loans to such borrowers. But discretion and risk appraisal are still there. The approach differs from bank manager to bank manager,” says an executive with a public sector bank. Adds Sen: “Under priority sector lending, banks have been giving loans to MSMEs. It will be good to know how many new loans have been given. That data is not available in the public domain.”

Applicants also complain that the online portal for applying for MUDRA loans is complicated.

Raising income is key

However, it is ironic that a government focused on pushing self-employment runs a skills programme that only views wage employment as a metric of performance. The key is to ensure that skilling raises incomes, and that could be through either employment or entrepeneurship.

Says a promoter of a south-based skills company, which runs government-supported skilling programmes in several States: “Our sewing machine operator programme has helped women in Haryana, who cannot venture out for a job, to earn by working out of their homes. We have helped create a customer base for them. However, the Centre's skills programme only measures 70 per cent job placement as a criterion for funding.”

Officials say the Centre is working on a plan to expand the scope of skilling grants, now only linked to tangible ‘placement’ outcomes, to generating self-employment as well.

“The Skills Ministry is deliberating on creating MUDRA-type entrepreneurs, apart from just job seekers,” they said.

With inputs from Tina Edwin, Jinoy Jose P and A Srinivas

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Published on July 02, 2018
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