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Record Growth in Small Business Loans under PMMY

  • 04 Oct 2023

In the first half of the current financial year ending in September 2023, the disbursement of small business loans under the Pradhan Mantri Mudra Yojana (PMMY) achieved a remarkable 38 percent growth compared to the same period the previous year, reaching a total disbursement of Rs. 1,91,863 crore.

Key Points:

  • Significant Growth in PMMY Disbursement: Government data reveals that as of September 2023, the disbursal of PMMY loans surged to ₹1,91,863 crore, marking a substantial growth of 38 percent compared to the corresponding quarter in the previous year.
  • This impressive growth in the first half of the current fiscal year exceeded the 30 percent growth recorded in the same period of FY23.
  • Drivers of Growth: The growth in PMMY loans is attributed to the increasing demand for Kishore loans (ranging from Rs. 50,000 to Rs. 5 lakh), signaling heightened economic optimism and activity.
  • Borrower-Friendly Environment: The borrower-friendly environment and the accessibility of funds without collateral contribute to the surging demand for small-value credit.
  • These collateral-free loans, with amounts up to ₹10 lakh, are offered by banks, non-banking financial companies (NBFCs), microfinance institutions (MFIs), and other financial intermediaries under the Mudra scheme, backed by the Credit Guarantee Fund for Micro Units (CGFMU).
  • Loan Categories: Mudra loans are categorized into three segments: Shishu (up to Rs. 50,000), Kishor (above Rs. 50,000 and up to Rs. 5 lakh), and Tarun (above Rs.5 lakh and up to Rs. 10 lakh).

Pradhan Mantri Mudra Yojana (PMMY): Empowering Small Businesses

About PMMY:

  • PMMY was initiated by the Government of India in 2015.
  • It aims to provide collateral-free institutional loans to support small business enterprises, fostering entrepreneurship and economic growth.

Funding Provision:

  • Member Lending Institutions (MLIs) such as Scheduled Commercial Banks (SCBs), Regional Rural Banks (RRBs), Non-Banking Financial Companies (NBFCs), and Micro Finance Institutions (MFIs) play a pivotal role in extending PMMY loans.

Types of Loans:

  • PMMY offers loans for various income-generating activities in sectors including manufacturing, trading, services, and agriculture.
  • Three distinct loan products are available under PMMY:
  • Shishu: For loans up to Rs. 50,000.
  • Kishore: Covering loans ranging from Rs. 50,000 to Rs. 5 lakh.
  • Tarun: Catering to loans between Rs. 5 lakh and Rs. 10 lakh.

Challenges Faced by the Scheme:

  • High Non-Performing Assets (NPAs): The scheme has encountered challenges related to a high rate of bad loans.
  • Limited Funds: The funding available may not meet the growing demand for loans under PMMY.
  • Regional Disparities: Benefits are not uniformly distributed across regions, leading to disparities.
  • Financial Literacy: Lack of financial knowledge among beneficiaries can result in defaults on loans.
  • Rural Outreach: The scheme faces limitations in reaching rural entrepreneurs effectively.
  • Collateral Requirements: Loans above a certain amount necessitate collateral, making it difficult for many small enterprises to access credit.
  • Loan Size Limitations: The loan cap of Rs. 10 lakhs may not be sufficient for small enterprises with higher capital requirements.

Steps Taken for Scheme Improvement:

  • Introduction of online applications through the Udyam Mitra portal to simplify the loan application process.
  • Some Public Sector Banks (PSBs) have adopted end-to-end digital lending for automated sanctions under PMMY, streamlining the approval process.
  • Intensive publicity campaigns by PSBs and Mudra Ltd. have been initiated to enhance awareness and visibility of the scheme among stakeholders.
  • Appointment of Mudra Nodal Officers in PSBs to facilitate efficient implementation.