| Introduction: Contextual introduction Body: Write the pros and cons of the MUDRA scheme Conclusion: Write a way forward |
Recently, PM Modi made a remark highlighting the importance of MUDRA scheme as a means to promote the financial inclusion. PM Mudra Yojna is a government scheme to provide collateral free institutional loans up to Rs 10 lakhs for small business enterprise. It has been a transformative scheme, enabling micro-finance in a major way.
The benefits of MUDRA Scheme are:
- It provides funding to the non-corporate small business sector through last mile financial agencies such as Banks, Non-Banking Financial Institutions and Micro Finance Institutions.
- Disadvantaged sections of society such as women entrepreneurs, SC/ST/OBC borrowers have received loans. About 8 crore new entrepreneurs have been created, of which more than 70% beneficiaries are women.
- It has brought many informal businesses into the folds of formal economy. This will widen the tax base for the government, as well as ensure that the intended labour benefits and social security are reaching the last mile.
However, there are some concerns related to MUDRA scheme as well:
- Most of the MUDRA loans are small-sized, with 83% of loans being less than Rs. 50,000. Small-sized loans are not going to impact the lives of entrepreneurs significantly or uplift their businesses.
- The interest subvention provided in this scheme, promotes dwarfism in the economy, with no incentive for small-sized industries to expand.
- The percentage of bad loans, or NPA (Non-performing assets) may rise, leading to poor performance of economy. Since, the loans are being given to units that require to scale up, without assessing the demand of the product in the market, some of the loans are bound to end up as bad loans.
Way Forward:
- Banks need to focus on the repayment capacity of the lender, so that the loans are paid back.
- Government needs to handhold the small businesses into use of technology, such as GPS, Website, E-commerce etc, so that the efficiency of the businesses increases. Integration of technology will make the business more agile, updated and visible to the people, while increasing the capacity to serve the customers, as well as improve turnaround time.
- The Micro-Finance institutions should step out of their client base and increase the sectors and areas served, so that a greater percentage of people are covered under MUDRA scheme.
