Home >News >India >Rate cut for Mudra Shishu loans

NEW DELHI : Finance minister Nirmala Sitharaman on Thursday said the government will offer 2% interest rate subvention for a period of 12 months to prompt loan payees under the Mudra scheme.

The decision is expected to bring much-needed relief to small borrowers under the Mudra Shishu loans up to 50,000.

Small businesses have been severely hit with the imposition of nearly a two-month-long nationwide lockdown aimed at curbing the spread of covid-19. This has also impacted the ability of these borrowers to repay their loans.

The announcement is a part of the second tranche of nine measures being announced on Thursday aimed at migrants, street vendors, small traders and farmers as part of the 20 trillion package to revive the economy. “After availing the three month loan moratorium (approved by the Reserve Bank of India), when they come back to pay interest/EMI, they will have a problem. (That’s why) we want to support them with an interest subvention. The incentive will be to pay in time to get the 2% interest subvention," Sitharaman said.

“This support will entail total relief of 1,500 crore, which is for all Shishu loan holders," she said, adding that the scheme will benefit more than 30 million credit takers. “If outstanding Shishu loan is 1.62 lakh crore, and on the assumption that everyone has taken loan up to 50,000—the maximum limit—the 2% interest subvention will benefit more than 3 crore borrowers," she said.

In 2015-16, the National Democratic Alliance government had announced the Pradhan Mantri Mudra Yojna (PMMY) to ensure better access to credit for small firms, boost entrepreneurship and promote financial inclusion.

Micro Units Development and Refinance Agency (Mudra) was started to refinance loans of up to 10 lakh given by banks and other lending institutions to small borrowers.

Under the scheme, collateral-free loan of up to 10 lakh falls under three categories—Shishu, Kishore and Tarun. Loans from 50,001 to 5 lakh are disbursed under Kishore. The third category is for loans of 5-10 lakh.

According to the Mudra website, 58.36 million loans worth 3.16 trillion have been disbursed during 2019-20 data updated on 27 March showed.

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