Chidambaram says 83% of MUDRA loans too small for business

Context: Recently Prime Minister MUDRA (Micro Units Development Refinance Agency) Yojana completed 8 years.  Reports say that 83% of loans given under the scheme were under Rs. 50000.

About PM MUDRA Yojana

  • The scheme aimed to provide loans up to 10 lacks to non-corporate, non-farm small/micro enterprises.
  • Under the aegis of PMMY, MUDRA has created three products namely ‘

1. ‘Shishu’ covers loans upto Rs. 50000

2. ‘Kishore’ covers loans above Rs. 50000 and upto Rs. 5 lakhs

3. ‘Tarun’ Covers loans Above 5 lakhs and upto 10 lakhs

  • These loans are given by Commercial Banks, RRBs, Small Finance Banks, MFIs and NBFCs.
  • MUDRA Bank is nodal agency to implement the scheme

What is MUDRA Bank? 

  • It is a refinancing institution and regulator  for micro-finance institutions.
  • It would be in charge of developing and refinancing the micro-enterprise sector by assisting finance institutions that lend to micro/small business entities engaged in manufacturing, trading, and service activities. 
  • It would collaborate with banks, microfinance institutions, and other lending institutions at the state and regional levels to provide microfinance support to the country’s microenterprise sector. 

Achievements under PM MUDRA Yojana

  • A total of 60827414 beneficiaries have taken the loan up to the financial year 2022-23
  • A total of Rs. 442296.46 Crore have been disbursed upto the financial house 2022-23

Limitations of MUDRA Yojana

  • There are a number of already existing refinancing agencies
  • There is a potential conflict of interest due to the nature of the roles and responsibilities of Mudra Bank.
  • Mudra Bank seems to promote shadow banking.
  • There is a better solution to finance micro and small businesses in the form of Microfinance institutions
  • It will lead to an increase in the number of regulators for MFIs

UPSC PYQ 2017:

What is the purpose of setting up of Small Finance Banks (SFBs) in India?

1. To supply credit to small business units

2. To supply credit to small and marginal farmers

3. To encourage young entrepreneurs to set up businesses, particularly in rural areas.

Select the correct answer using the code given below:

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Ans. A

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