Are MUDRA loans living up to the promise?

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Summary

  • The Reserve Bank of India (RBI) data shows that banks lent between 1.19 trillion and 1.76 trillion a year in under- 10 lakh loans from 2017-18 and 2021-22

On the eighth anniversary of the Pradhan Mantri Mudra Yojana (PMMY) this month, the Centre said loans worth 23.2 trillion had been sanctioned across 400 million accounts so far under the scheme. However, reclassification and reconciliation issues make an assessment of PMMY tricky. The Centre’s data possibly also includes loans given in normal course of business that are being classified under PMMY, a howindialives.com analysis suggests.

The exact split cannot be determined, but this is a significant component. The PMMY disburses small loans (up to 10 lakh) to small unorganized non-farm businesses through banks, microfinance institutions (MFIs) and non-banking finance companies (NBFCs), all of which were giving sub- 10 lakh loans even before PMMY.

To understand the data, we looked at two sources. The Reserve Bank of India (RBI) data shows that banks lent between 1.19 trillion and 1.76 trillion a year in under- 10 lakh loans from 2017-18 and 2021-22. The split between PMMY and non-PMMY loans is not stated. Even in 2013-14, before PMMY, banks gave about 1 trillion in new loans of below 10 lakh.

MUDRA Ltd, the agency set up to refinance PMMY loans, releases data on loans sanctioned. While it includes all categories of lenders, for banks the sanctioned amount was 1.76 trillion to 2.71 trillion in the same period.

MUDRA data is for sanctioned loans, so it is expected to be higher. But since RBI numbers include non-PMMY loans, too, the MUDRA data may also include non-PMMY loans under 10 lakh given to small businesses. The split is unclear in both cases.

Small is Big

Another clue to the volume of new lending truly enabled by PMMY, as opposed to an existing system continuing to give out loans, comes from the PMMY nodal agency. MUDRA is short for Micro Units Development and Refinance Agency Ltd, which provides refinancing to institutions, which further use it to provide loans under PMMY to borrowers who might not be otherwise eligible. Between 2015-16 and 2021-22, MUDRA provided a total refinance of 53,050 crore—a fraction of the 23.2 trillion of loans cited under PMMY. At the same time, the PMMY data does provide a window into the lending patterns in the sub- 10 lakh loans segment by the institutional sector to small businesses and vendors. These segments typically find it hard to raise loans from institutions such as banks. PMMY offers three categories of loans by size: up to 50,000 (Shishu), 50,000 to 5 lakh (Kishore) and 5 lakh to 10 lakh (Tarun). In 2021-22, about 78% of loan accounts were below 50,000.

Sliding Scale

Further, the three categories of loans—Shishu, Kishore and Tarun—differ sharply in terms of their distribution across gender and social groups. In 2021-22, while 72% of the total loan amount disbursed in the lowest loan category (below 50,000) went to women-owned businesses, that figure falls steeply as the value of the loan goes up.

Only 9% of the amount disbursed under Tarun (loans of 5 lakh to 10 lakh) went to women in 2021-22. Across social groups, the changes are stark as well.

While borrowers from the scheduled castes and tribes account for about a quarter of the value of all loans of below 50,000, they account for just 4% of the total value disbursed under Tarun.

The share of borrowers from other backward classes (OBCs) in the total value of loans disbursed, as of 2021-22, falls from 28% under Shishu to 10% under Tarun.

Credit Conundrum

Beyond PMMY, the bigger issue is one of using the current system of institutional credit—via banks, NBFCs, and MFIs—to extend loans to micro businesses. Decades of schemes have failed in this regard simply because the extent to which a small business has to comply with bank credit standards and wade through bank bureaucracy is substantial. Sometimes, such businesses have thus found non-institutional sources of credit more accessible. Three years after PMMY came into being, a government household survey found that only about 13.5% of non-farm rural households were under debt accessed through institutional sources. Among self-employed urban households, the figure was 18%. That is the gap that MUDRA and PMMY aim to bridge. How much they have moved the needle becomes hard to assess as disaggregated and reconciled data is absent.

www.howindialives.com is a database and search engine for public data.

 

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