New Delhi: The government is likely to revamp some of its flagship schemes in this year’s budget to improve their coverage and plug loopholes in implementation that are stalling efforts to promote financial inclusion.

Some of the schemes which could see modifications are Atal Pension Yojana (APY), aimed at providing pension coverage, and Pradhan Mantri Mudra Yojana, which funds small entrepreneurs, according to two people familiar with the development.

APY is aimed at transforming India from a pensionless society to a place where the majority have regular pension paid to them in their old age. It is a fixed benefit scheme promising subscribers a fixed monthly pension of 1,000-5,000, depending on their contribution.

The response to the scheme has been lukewarm; since its launch in May, banks have only enrolled around 1.9 million subscribers. This is less than 10% of the 20 million target set for the banks by 31 December 2015, despite the government offering to pay 50% of the subscribers’ contribution for those who enrol before 31 December. The deadline has now been extended till 31 March.

“Many changes have already been made to the scheme. A few more are under consideration. If a person dies before 60, the money is handed over to the family. There is a recommendation that the widow of the subscriber should be allowed to continue to contribute and draw pension. It is also proposed to continue the government’s contribution to the subscriber next year as well. There are some suggestions regarding withdrawal and contributions which are also under consideration," said one of the persons mentioned above, who did not want to be identified.

Similarly, in the Mudra scheme, the government is looking at ways to ensure that the scheme is availed by people from the lowest strata of society.

Mudra, or Micro Units Development and Refinance Agency, was launched last year to help ease funding problems faced by more than 57 million small businesses across India, granting loans of up to 10 lakh without any collateral. It also has the objective of reducing borrowing costs by providing refinancing at a relatively low rate of interest.

However, interest rates are not as low as envisaged, with banks charging varied interest rates.

“We would like to streamline the existing framework and see why it is not working well in some sectors. In rural areas, financial inclusion is not very good. We are looking at how to ensure the scheme reaches the lowest segment who are looking for small loans up to 5,000," said the second person mentioned above, also not wanting to be identified.

“The prevailing interest rates, though lower as compared with what is charged by moneylenders, is still not attractive," the person added. “The focus will also be to ensure the ‘missing middle’ credit scheme takes off."

This “missing middle" credit scheme—called so because small-scale entrepreneurs are neither funded by the banks nor by microfinance lenders—is aimed at providing financial support to financial intermediaries for on-lending to individuals for setting up micro enterprises with beneficiary loan sizes of 50,000 to 10 lakh. As of 1 January, Mudra loans amounting to 71,312 crore had been disbursed to 17 million borrowers.

Currently, loans under the scheme are divided into three categories: loans up to 50,000 called Shishu, loans between 50,000 and 5 lakh called Kishore, and those between 5 lakh and 10 lakh called Tarun. The first category accounts for most of the loans given out so far.

N.C. Saxena, a former member of the erstwhile National Advisory Council, said these schemes are beset with problems. “There are several issues. First is identifying the right beneficiary. Then is to ensure that they get Aadhaar numbers and then a bank account. And finally, it is to convince them to participate in these schemes. Typically, people in that strata of society are circumspect about any scheme, which needs them to put in money—simply because they do not trust that they will get this money back," said Saxena. “There is a need for much better communication."

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