Pradhan Mantri Mudra Yojana: Credit Support for Livelihood

prime minister of india As Mudra Yojana (PMMY) recently completed eight years, we can take a look at the massive changes brought about by this credit support programme, which was envisaged in the gloomy days of 2014-15. At a time when our formal financial sector was going through a period of bad loans, especially with regard to its impact on the socio-cultural fabric of the country. PMMY is one of the flagship schemes of the Central Government, which encourages self-employment. The scheme targets those micro and self driven enterprises, which form a vibrant business ecosystem in India. Micro enterprises are mostly engaged in manufacturing, processing, trading and services and many of these units are in the sole-proprietorship business category. The formal or institutional structure of the country was unable to reach out to these units and meet their financial needs. These units were largely self-financed or depended on individual networks or moneylenders.

Keeping this gap in mind, PMMY was launched with an aim to create an easy channel between the large unbanked segment and the formal lenders. Launched in 2015, PMMY provides collateral-free institutional loans up to Rs 10 lakh. This credit facility is offered by member lending institutions – which include scheduled commercial banks, regional rural banks, non-banking financial companies and micro finance institutions. Under the aegis of PMMY, the Micro Units Development and Refinance Institute (MUDRA) formulated three sub-schemes, which differ only in terms of loan amounts – Shishu (for loans up to Rs. 50,000), Kishor (from Rs. 50,001 to Rs. 5 lakh) and Tarun (for Rs 500,001 to 10 lakh). These names of the sub-schemes as Shishu, Kishore and Tarun also reflect the stage of development of the beneficiary micro unit and its funding needs. Any person, who is eligible to take loan and has a business plan for a small business venture, can avail loan under the scheme. Since its launch, the scheme has undergone several changes. For example, its target area has been expanded to maximize the positive economic impact.

Initially, the PMMY covered only income generating activities in the manufacturing, trading and services sectors. However, from 2016-17 onwards, activities related to agriculture and ancillary services that promote livelihood have also been brought under its purview; From 2017- 18, loans have been sanctioned for purchase of tractors and power tillers and from 2018-19, loans for purchase of two-wheelers for commercial purposes have also been included.

The scheme registered an average increase of 33% in total credit disbursement in the first three years. This shows that its proposal has been welcomed by the people. The outbreak of the Covid pandemic and the subsequent slowdown in economic activity affected the demand for these loans. During this phase, the Reserve Bank of India announced a special relief, under which all lending institutions were to be given a moratorium of six months on payment of all installments under the scheme.

The demand for loans under PMMY has picked up after the reopening of the economy. In most categories, loan disbursements have crossed pre-Covid levels. Till March 24, 2023, the cumulative credit-disbursement amount of the scheme is Rs 22.65 trillion. Shishu loans have the highest share of 40%, which shows that PMMY has largely supported first-time entrepreneurs. The economic impact of PMMY is now well established. As per the survey results of the Ministry of Labor and Employment, the scheme had helped generate 11.2 million net additional jobs during the period from 2015 to 2018. The social impact of PMMY is also very important and can be understood at three levels. The effects of the scheme are, in particular, at three levels – (1) the wider social group (2) women and (3) members of minority communities.

In the context of the former, PMMY has benefited all sections of Indian society:?General, Scheduled Castes/Tribes (SC/ST) groups and Other Backward Classes (OBCs). The increasing participation of OBCs and SCs in availing these loans in recent times indicates the wider reach of the scheme. One of the most commendable achievements of the scheme is the promotion of women entrepreneurship. In its cumulative figures since inception, the share of accounts held by women is 69 per cent, while the share of women in the approved list is 45 per cent. In the first four years of the scheme, credit disbursement to women entrepreneurs registered an average growth of 23 per cent. In 2022, it surpasses its pre-Covid level by registering a robust growth of 28%. PMMY has performed well in other measures of inclusion as well. The scheme has been able to meet the needs of the minorities. Lending to members of minority groups reached an all-time high in 2022 and accounted for 10% of total lending, with child and adolescent lending accounting for 85% of total cumulative lending.

Since PMMY is a national scheme, its presence at all locations is an important consideration from the point of view of balanced economic development. One of the objectives of India’s development policy has been to reduce the gap between the flourishing western and backward eastern parts of the country. Herfindahl Density Index estimates, based on the number of accounts and funds disbursed, indicate a significant expansion of the scheme in terms of states and products. This indicates impressive geographic coverage.

States like Uttar Pradesh, Odisha and Bihar have received multiple benefits from PMMY. West Bengal and Tripura also registered an increase in their overall share, indicating an eastward flow in terms of beneficiaries. Developed regions such as the National Capital Region, Maharashtra, Karnataka and Goa have seen their share decline, even though they played a relatively prominent role in the scheme. Overall, the PMMY, during its ninth year of operation, has contributed by promoting self-employment among social groups, doubling the participation rate of women in terms of commercial-bank credit, and boosting the participation of minority groups; It has achieved its objective of equitable and fair location-based distribution of benefits. In the coming years, it is essential that PMMY reaps the benefits of 5G technology and e-commerce, even as Mudra cards are being popularized more. Encouraging registration and formalization of self account enterprises can be another way to take this scheme to new heights. Noted anthropologist Oscar Lewis argued in his famous book, The Children of Sanchez, that the culture of poverty perpetuates itself over time and often transcends borders. PMMY, in a short span of time, has not only attempted and succeeded in changing this culture of poverty, but also infused vibrancy and ‘can-do’ spirit into the Indian micro-credit ecosystem Have done PMMY has clearly been an unusual solution to common problems.

(The writer is Chief Economic Advisor, State Bank of India Group)
Soumya Kanti Ghosh