If micro-enterprise owners such as vegetable/fruit vendors and small food stall owners play their cards right, it may be possible for them to get interest-free credit from banks under the Pradhan Mantri Mudra Yojana.
Once more ATMs with cash-deposit facility and standalone cash-deposit machines are available, withdrawing and depositing money will become easier, enabling small borrowers to dip into their overdraft account in the morning and repay the outstanding by evening.
The borrower in such cases will not have to pay any interest. For example, a vendor could withdraw, say, Rs. 1,000 from his bank’s ATM in the morning to buy vegetables from the wholesale market. After selling vegetables throughout the day, suppose the vendor earns Rs. 1,300. Now, if he deposits Rs. 1,000 into the ATM/cash-deposit machine by evening, then he saves on interest payment. But if the vendor deposits, say, Rs. 800, he will be charged interest on the outstanding amount ( Rs. 200).
Jiji Mammen, CEO, MUDRA, indicated that nil interest outgo on overdrafts is possible.
MUDRA (Micro Units Development & Refinance Agency Ltd), a wholly-owned subsidiary of the Small Industries Development Bank of India, is responsible for providing refinance to banks and microfinance institutions on loans given by them to micro/small business entities engaged in manufacturing, trading and services activities.
Mammen explained that if a small business entrepreneur really uses the Mudra card prudently, he can withdraw money in the morning from the ATM, use it for his business, and in the evening, if there is a mechanism to put back the money into the ATM (banks are increasingly putting ATMs with cash accepting/ recycling facility), he need not pay any interest.
“This was discussed in one of the bankers’ meetings. They themselves said that interest will be charged only if there is an outstanding (loan) overnight. If it is a day transaction, the micro-entrepreneur can enjoy credit virtually free. Now, awareness creation is very important,” said the MUDRA chief.
Given that not all ATMs accept cash and cash-deposit machines are very few, Mammen felt that business correspondents could be an alternative channel for the small entrepreneurs to deposit their cash/repay overdraft. If this happens, the entrepreneurs will be empowered and reap benefits.
Since early April 2015, when the Mudra Yojana was rolled out, banks and microfinance institutions, have sanctioned 3.22 crore loans (to new as well as existing entrepreneurs).
As per latest MUDRA data, in the last 12 months, banks and microfinance institutions have sanctioned and disbursed loans aggregating Rs. 1.28 lakh crore and Rs. 1.22 lakh crore, respectively.
Source: Business Line
