Record Growth in Small Business Loans under PMMY

04 Oct 2023

In the first half of the current financial year ending in September 2023, the disbursement of small business loans under the Pradhan Mantri Mudra Yojana (PMMY) achieved a remarkable 38 percent growth compared to the same period the previous year, reaching a total disbursement of Rs. 1,91,863 crore.

Key Points:

Significant Growth in PMMY Disbursement: Government data reveals that as of September 2023, the disbursal of PMMY loans surged to ₹1,91,863 crore, marking a substantial growth of 38 percent compared to the corresponding quarter in the previous year.
This impressive growth in the first half of the current fiscal year exceeded the 30 percent growth recorded in the same period of FY23.
Drivers of Growth: The growth in PMMY loans is attributed to the increasing demand for Kishore loans (ranging from Rs. 50,000 to Rs. 5 lakh), signaling heightened economic optimism and activity.
Borrower-Friendly Environment: The borrower-friendly environment and the accessibility of funds without collateral contribute to the surging demand for small-value credit.
These collateral-free loans, with amounts up to ₹10 lakh, are offered by banks, non-banking financial companies (NBFCs), microfinance institutions (MFIs), and other financial intermediaries under the Mudra scheme, backed by the Credit Guarantee Fund for Micro Units (CGFMU).
Loan Categories: Mudra loans are categorized into three segments: Shishu (up to Rs. 50,000), Kishor (above Rs. 50,000 and up to Rs. 5 lakh), and Tarun (above Rs.5 lakh and up to Rs. 10 lakh).

Pradhan Mantri Mudra Yojana (PMMY): Empowering Small Businesses

About PMMY:

PMMY was initiated by the Government of India in 2015.
It aims to provide collateral-free institutional loans to support small business enterprises, fostering entrepreneurship and economic growth.

Funding Provision:

Member Lending Institutions (MLIs) such as Scheduled Commercial Banks (SCBs), Regional Rural Banks (RRBs), Non-Banking Financial Companies (NBFCs), and Micro Finance Institutions (MFIs) play a pivotal role in extending PMMY loans.

Types of Loans:

PMMY offers loans for various income-generating activities in sectors including manufacturing, trading, services, and agriculture.
Three distinct loan products are available under PMMY:

Shishu: For loans up to Rs. 50,000.
Kishore: Covering loans ranging from Rs. 50,000 to Rs. 5 lakh.
Tarun: Catering to loans between Rs. 5 lakh and Rs. 10 lakh.

Challenges Faced by the Scheme:

High Non-Performing Assets (NPAs): The scheme has encountered challenges related to a high rate of bad loans.
Limited Funds: The funding available may not meet the growing demand for loans under PMMY.
Regional Disparities: Benefits are not uniformly distributed across regions, leading to disparities.
Financial Literacy: Lack of financial knowledge among beneficiaries can result in defaults on loans.
Rural Outreach: The scheme faces limitations in reaching rural entrepreneurs effectively.
Collateral Requirements: Loans above a certain amount necessitate collateral, making it difficult for many small enterprises to access credit.
Loan Size Limitations: The loan cap of Rs. 10 lakhs may not be sufficient for small enterprises with higher capital requirements.

Steps Taken for Scheme Improvement:

Introduction of online applications through the Udyam Mitra portal to simplify the loan application process.
Some Public Sector Banks (PSBs) have adopted end-to-end digital lending for automated sanctions under PMMY, streamlining the approval process.
Intensive publicity campaigns by PSBs and Mudra Ltd. have been initiated to enhance awareness and visibility of the scheme among stakeholders.
Appointment of Mudra Nodal Officers in PSBs to facilitate efficient implementation.