Has Mudra scheme been successful?

The government’s micro loan scheme, going by the moniker Pradhan Mantri Mudra Yojana, has disbursed Rs1.53 trillion worth of loans so far in 2016-17, which represents a 15.04% growth from the previous fiscal year. Recall that in fiscal year 2016 (FY16), when the scheme was first implemented, disbursements had exceeded the target specified by that year’s budget.

Buoyed by the success of FY16, the government had set a target of Rs2.44 trillion for disbursements this year. But with just a week left for the year to end, disbursements are just 62% of the target for the current year. But is this reason enough to label the scheme unsuccessful? To be fair, we can say the government’s target was lofty since it was over 80% higher than last year’s actual disbursals.

But dig a bit deeper, and the sheen continues to wear off. Let us look at the performance of the banks, the real anchors of the scheme. Data from the Reserve Bank of India (RBI) shows that the banking sector’s micro and small loan disbursals stood at Rs8.3 trillion as of January. Notwithstanding the refinance and credit guarantee support that the Micro Units Development and Refinance Agency (Mudra) provides to banks and the existing mandate to lend under priority sector, the micro and small loan portfolio of the banking sector has barely grown in the last one year.

In fact, there are very few takers for the refinance schemes as well. In FY16, Mudra extended refinance worth about Rs3,000 crore to banks, which is chump change compared to the micro and small loan portfolio of the lenders. Refinance details for the current year are not available publicly yet. The share of small and micro loans in total credit to industry has reduced to 12.55% this year (FY17) from 13.33% in FY15.

The reason the scheme has shown a growth of 15.04% in total disbursals even though banks have not lent more is that loans given by microfinance institutions (MFIs) are also included under the scheme. In fact, almost 35% of the loans disbursed so far this year are done by MFIs. Refinance extended by Mudra to MFIs was Rs616 crore in FY16 against the total loan disbursals of Rs61,860 crore of the industry at that time.

The main business of an MFI is micro loans and this sector has been growing by leaps and bounds. In FY16, the gross loan portfolio of MFIs grew a massive 84%, while at the end of the December 2016 quarter, the year-on-year growth in the loan book stood at 53%. The sheer growth of the MFI industry would no doubt boost Mudra’s numbers but one look at the lukewarm response to its refinance schemes by both micro lenders and banks shows that Mudra is losing ground.