MUDRA 2.0 Program

• Background: The Pradhan Mantri MUDRA Yojana (PMMY) was launched in 2015 to promote entrepreneurship by providing collateral-free micro-loans up to ₹10 lakh.
• Recent Changes: The Union Budget 2024 increased the loan ceiling to ₹20 lakh, specifically benefiting those under the Tarun category who had previously accessed MUDRA loans.
• Impact: The MUDRA Scheme has disbursed more than ₹27.75 lakh crore to 47 crore small and new entrepreneurs, significantly affecting the grassroots economy.
• Inclusivity: The scheme fosters gender equality and social inclusion by encouraging job creation and self-employment in rural and semi-urban areas.
• Loan Distribution: Women hold 69% of the loans, while SC/ST and OBC entrepreneurs account for 51%, showcasing the program’s inclusive nature.
• Improved Loan Performance: The non-performing assets (NPAs) under the scheme have decreased from 3.61% in FY21 to 2.1% in FY24.

MUDRA Loan Categories:

• Shishu: Loans up to ₹50,000.
• Kishore: Loans between ₹50,000 and ₹5 lakh.
• Tarun: Loans ranging from ₹5 lakh to ₹10 lakh.

Challenges Faced by PMMY:

• Targeting Issues: Difficulty in ensuring that the smallest and most marginalized entrepreneurs, particularly in rural and remote regions, receive benefits.
• Uneven Loan Distribution: Disparities exist, with top districts receiving over ₹26,000 crore in 2021-22, while the bottom 318 districts received significantly less.
• High NPAs in Some Categories: The Kishore and Shishu categories face higher non-performing assets due to inadequate business skills among early-stage entrepreneurs.
• Financial Illiteracy: A significant portion of beneficiaries (73%), particularly first-time borrowers, lack financial literacy, leading to defaults and poor financial management.
• Implementation Gaps: Inadequate monitoring and enforcement have resulted in fund leakages and misuse.
• Credit Appraisal Challenges: With increased lending, maintaining quality credit appraisals is challenging, as exposure grew from ₹3.3 lakh crore in FY22 to over ₹5 lakh crore by FY24.
• Lack of Credit Guarantee: The absence of a strong credit guarantee mechanism has made banks reluctant to lend, especially to small enterprises, limiting their growth.

Recommendations for MUDRA 2.0:

• Targeted Outreach: Create empowerment zones in rural and semi-urban areas to offer comprehensive services, including financial literacy, mentorship, and business support.
• Strengthen Financial Literacy: Implement national programs focusing on budgeting, savings, credit management, investment strategies, and digital literacy to better equip entrepreneurs.
• Enhanced Credit Guarantee Scheme (ECGS): Introduce a robust ECGS to provide credit guarantees, thereby reducing risks for financial institutions and encouraging lending to small and micro enterprises.
• Real-time Monitoring and Evaluation: Develop a framework to track loan disbursements, utilization, and repayments effectively.
• Impact Assessments: Conduct beneficiary impact assessments to evaluate socio-economic outcomes, improving transparency and efficiency.
• Improve Credit Appraisal Processes: Ensure quality lending while managing increased lending pressures.
• Targeted Support: Offer specialized support for high-risk categories, such as Kishore and Shishu loans, to address higher NPAs and enhance financial management among early-stage entrepreneurs.