2 years of Mudra: Gains for SMBs, but new businesses struggle amid fears of NPAs

While small businesses appear to be benefiting from the Mudra scheme, the absence of a transaction history acts as a major impediment for new borrowers

MudraThe Mudra scheme is a crucial outreach programme of the Central government that aims at supporting small and medium businesses by way of collateral-free loans up to Rs 10 lakh and free them from the clutches of the moneylenders, who charge exorbitant interest rates.

It is more than two years that the Pradhan Mantri Mudra Yojana (PMMY) was launched, a number of Mudra borrowers in the districts of Bareilly and Pilibhit in Uttar Pradesh, over a dozen bankers in these two cities and several applicants have tried to avail the Mudra loan but failed to get.

Existing businesses with transaction history have found it much easier to take Mudra loans and have, thereby, benefited from these funds, which were available at one-third of the cost as compared to raising them from the money lender. New businesses or those having limited transaction history found it extremely difficult to raise Mudra loans, especially funds of over Rs 50,000. There are early signs of a portion of these loans — 1.5 per cent as on December 30, 2016 — turning into non-performing assets (NPAs). Bankers dealing directly with Mudra loans said that they are facing irregular payments in the case of a large number of Mudra loans below Rs 50,000 per person.

Since the launch of the PMMY on April 8, 2015, loans disbursed by banks and microfinance institutions for non-corporate small borrowers, for income-generating activities in the non-farm segment are being termed as Mudra loans. A total of Rs 1.75 lakh crore worth of Mudra loans were disbursed in 2016-17, as compared to Rs 1.33 lakh crore in 2015-16, according to the data available on Mudra website. Interest rate on these loans ranges from 9-12 per cent.

While Mudra loans are extended by banks, regional rural banks and micro-finance institutions, Micro Units Development and Refinance Agency Ltd or Mudra is a firm that provides refinance for such loans. As on March 31, 2016, the outstanding refinance portfolio of Mudra stood at Rs 3,291.66 crore.

Nadeemul Hasan, is the owner of CSM Traders, an SME unit based in Alamgiriganj in Bareilly manufacturing shoe material and ladies sandals. Hasan, who was having regular transaction history with banks, took a Mudra loan of Rs 10 lakh from a Punjab National Bank (PNB) branch. The loan helped him buy cheaper inputs for his manufacturing unit, nearly 70 per cent of which are imported from China.

When asked about how he got Mudra loan, Hasan said that the bank checked his business, income tax returns and track record over the years before giving the loan. “Had I taken a similar loan from the money lender, then I would have to pay 3-times the interest rate and had to deposit my stocks as security with him,”  Hasan said.

Jaspreet Kaur,  took a loan of Rs 50,000 from State Bank of India (SBI) to add women’s cosmetic products to her family’s existing shop selling ready-made garments. She deposits an equated-monthly instalment or EMI of Rs 1,250 for the loan. After adding the cosmetic products, Kaur says her monthly earnings increased by Rs 1,000. Right now, she deposits her EMI in cash at the CB Ganj branch of SBI in Bareilly and plans to get an auto debit done in future. “Bank should increase the loan amount,” Kaur said.

Shiv Nandan, runs a shoe manufacturing unit in Chandausi in Sambhal district, nearly 70 kilometer from Bareilly. He took a Mudra loan of Rs 2 lakh from PNB and repays an instalment of around Rs 2,000 per month. A resident of Bareilly, Nandan says that the loan helped him expand production at his unit and he could manage a turnover of Rs 7-8 lakh last year. Munawwar Khan.

Munnawar Khan, makes wood furniture and has taken a loan of Rs 50,000 for his business from one of the SBI’s branches in Bareilly. Khan, having an EMI of Rs 1,250, has been irregular in his repayment of the loan, a branch officer dealing with his loan says. When asked why he took the loan, Khan says, “I felt like taking the loan and not taking the loan, but ended up taking it.” The loan benefits big business but is not of much help for micro entrepreneurs, he says.


As much as 1.5 per cent of the total disbursement of Mudra loans or Rs 2,955.51 crore have turned into NPAs as on December 30, 2016, according to data from the finance ministry. With the government aggressively promoting Mudra loans, borrowers have come to see them as their right. “So, even if they don’t have the repayment capacity or a viable business plan, they feel that it is their right to take Mudra loans,” says a branch manager at Puranpur branch of a state-owned bank. This feeling of the right for a loan, coupled with the recent farm loan waiver announced by the UP government, has set the ground for Mudra loans turning into NPAs.

“We have already started facing problems with repayments. Nearly 10-20 per cent of the loans given by our bank are not being serviced regularly, these loans have the seeds of turning into NPAs. With the UP government announcing loan waiver in the state, borrowers feel that Mudra loans will also be waived off in due course,” the branch manager says. Another bank officer says that many borrowers think of Mudra loans as something similar to those that are given under the Prime Minister’s Rozgar Yojana. “They feel these will be waived off, eventually, like it was done in the past,” he said.

A bank officer, directly in-charge of Mudra loans in Bareilly, was even more alarmist in his assessment of such loans. “As many as 40-50 per cent of our total Mudra loans of up to Rs 50,000 to borrowers have turned irregular in their payments. We have to go after them for recoveries, which also is a costly affair. For an EMI of Rs 1,200 on a Rs 50,000-crore loan which remains unpaid, we have to spend nearly Rs 300-400 on petrol and other expenses to reach the person to seek repayments, apart from the time that is wasted,” says the officer with an SBI branch in Bareilly.

When asked about NPAs in the case of Mudra loans, Finance Minister Arun Jaitley had said that last month that disbursement was rising and there were no NPAs. “Mudra loans are rising, and all small people who take such loans, there are no NPAs there, they repay their loans. These NPAs largely pertain to 40-50 large corporates. Therefore, if last year, Rs 1.8 lakh crore of Mudra loans were disbursed, the disbursement will cross Rs 2.44 lakh crore this year,” Jaitley had said on June 1, at a press conference to mark three years of the Narendra Modi government.

From the banks’ point of view, automobile loans and electric-rickshaw loans are the best form of Mudra loans, as the security gets created as soon as the loan is provided. For most other Mudra loans, there is no collateral for the bank to turn to in the case of non-repayment.

Source: Indian Express

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