Pradhan Mantri Mudra Yojana (PMMY)

Why in the News?

NITI Aayog and KPMG have published a report on the impact assessment of the Pradhan Mantri Mudra Yojana (PMMY), highlighting its achievements and challenges.

About PM Mudra Yojana (PMMY)

• Launch: Announced in the 2015 Union Budget for FY-2016, PMMY is a flagship scheme of the Government of India.
• Objective: To provide affordable credit to micro and small enterprises (MSMEs) and integrate them into the formal financial system.

Key Features of the Scheme

• Type: Central Sector Scheme.
• Loans Through Member Lending Institutions (MLIs): Includes Public Sector Banks, Private Sector Banks, Cooperative Banks, Regional Rural Banks, Micro Finance Institutions (MFIs), Non-Banking Finance Companies (NBFCs), and Small Finance Banks (SFBs).
• MUDRA (Micro Units Development & Refinance Agency Ltd.) is responsible for refinancing these institutions, not lending directly to entrepreneurs.
• Eligible Borrowers: Non-Corporate Small Business Segment (NCSB), including individuals, proprietary concerns, partnerships, and companies.
• Credit Guarantee: Provided through the Credit Guarantee Fund for Micro Units (CGFMU), established in 2015 to guarantee loans sanctioned under PMMY.
• Other Benefits:
• No processing charges or collateral requirements.
• Improved access to affordable credit with flexible repayment options.
• MUDRA Card: A debit card issued for the working capital portion of the loan.

Key Achievements Highlighted in the Report

• Credit Support to MSMEs: Since 2015, the scheme has provided credit support of approximately ₹18.39 lakh crore, reaching around 35 crore accounts.
• Financial Inclusion: Women entrepreneurs hold about 71.4% of total PMMY accounts (FY 2022). The sanctioned amount for new entrepreneurs increased from ₹61,650 crore to ₹72,685 crore.
• Encouragement for Small Businesses: About 80% of loan accounts are in the Shishu category, which mainly benefits SC, ST, and OBC individuals.
• Performance of Aspirational Districts: Notable increases in loan accounts and amounts sanctioned, with a year-on-year change of 12% and 14.7%, respectively.

Issues & Challenges Highlighted by the Report

• Regional Variation: The Northeast region has the lowest account numbers and amounts sanctioned, accounting for only about 4% since 2015.
• Rising NPAs: Non-Performing Assets (NPAs) have been increasing at a CAGR of 22.51% in accounts and 36.61% in amounts from FY 2017 to FY 2022, with public sector banks reporting the highest NPAs.
• Issues in Scheme Design:
• A 15% ceiling on payouts under CGFMU limits the benefits for banks.
• Complex claim settlement processes and high guarantee fees.
• Issues in Institutional Mechanism:
• Lack of a centralized database and poor credit penetration in weaker sections.
• Absence of a digitized platform for quick resolution of queries.

Way Forward (Recommendations)

• Advertising: Utilize both traditional and online advertising to promote the scheme and its benefits.
• Digitization: Streamline the lending process to enhance transparency and efficiency.
• Digital Portal: Develop a portal for real-time data upload and management.
• Feedback Mechanism: Implement chatbots and redressal systems for efficient communication with MLIs and borrowers.
• Recognition Mechanism: Incentivize well-performing MLIs to encourage better performance.

Success Stories and Best Practices

• Integration with Other Schemes: The MUDRA scheme is integrated with initiatives like "Loans in 59 Minutes" for quick credit access.
• MUDRA Day: UCO Bank organizes monthly campaigns to enhance accessibility.
• Group Lending Systems: Institutions like Bandhan and IndusInd Bank have successfully reduced NPAs through group-based lending.

The PMMY continues to play a crucial role in empowering small enterprises and promoting financial inclusion across India, but addressing the highlighted challenges is vital for its sustained success.