Financial inclusion has always been the corner stone of Prime Minister Narendra Modi’s economic policies. However, with less than a week to go for the Budget 2019, the Central Finance Ministry has the task of addressing the 92 per cent non-performing assets (NPA) under the MUDRA scheme.
Soon after coming to power, PM Modi had announced a slew of schemes to make every citizen part of the financial system. Of these, the Pradhan Mantri Mudra Yojana (PMMY), or simply known as the MUDRA scheme, stands tall and strong.
MUDRA, a financial institution named Micro Units Development and Refinance Agency, was set up by the government in 2015 to provide finance to non-corporate and non-farm small businesses. The limit to avail loan is up to Rs 10 lakh. Till date, it has disbursed loans to the tune of Rs 6.82 lakh crore.
In FY19 so far, over Rs 1.54 lakh crore loans have been disbursed. In FY18, the amount stood at Rs 2.46 lakh crore. In its first year, the amount was Rs 1.32 lakh crore.
The percentage of bad loans in the segment is increasing every year. The bad loans under MUDRA loans jumped 92 percent in FY18 against FY17, even as the advances increased only 40 percent year-on-year.
It must, however, be noted that their share in the total NPAs of the banking sector is only 5.38 percentage points.
According to the latest data provided by the government, 40 percent of the loans in FY18 were disbursed to women entrepreneurs while nearly 33 percent were given to social categories. During the same financial year, over 1.25 crore new entrepreneurs opened their MUDRA accounts and received loans amounting to Rs 93,000 crore.
The participation of the under-privileged sections (SC/ST/OBCs) of the society in the PMMY programme was 55 percent in terms of the number of loan accounts, and 34 percent in terms of loan amount sanctioned during FY18.
According to government estimates, the share of loans sanctioned to those within SC, ST and OBC categories were 18 percent, 5 percent and 32 percent, respectively.
Over the last three years, MUDRA has enrolled 200 financial institutions, including 93 banks (21 PSBs, 18 private, 36 regional rural and 15 cooperative banks), 72 micro-finance institutions (MFIs), 32 non-banking finance companies (NBFCs) and six small finance banks (SFBs).
There, however, lies certain challenges in making the entire process a success.
The government has maintained that a large number of entrepreneurs are yet to receive financial support through the formal financial system.
The "biggest bottleneck" in the growth of entrepreneurship is the "lack of financial support", according to the government. More than 90 percent of the sector does not have access to formal sources of finance.
Data from the government shows that the top ten states to receive the most benefit from the scheme are the ones which already have a robust financial system.
While six large states led by Tamil Nadu have received over 50 percent of the MUDRA loans disbursed so far, most of the north-eastern states and union territories failed to receive even 1 percent of the total loans.
The top ten states include Tamil Nadu, Karnataka, Maharashtra, Uttar Pradesh, West Bengal, Bihar, Madhya Pradesh, Rajasthan, Gujarat and Odisha.
The government has maintained that Rajasthan has seen improvement due to improved performances of public sector banks while private banks and NBFCs contributed to the growth in Gujarat.
While southern India has the most MUDRA account holders (30 percent), eastern India was 27 percent, followed by northern India at 18 percent. North-east had the lowest account holders' tally at 8 percent.
The lowest 10 states in terms of loan disbursal included the seven sisters in north-east (minus Assam), Andaman and Nicobar, Dadra and Nagar Haweli, Daman and Diu and Lakshadweep.