Daily News Analysis

Pradhan Mantri Mudra Yojana:

22nd July, 2021 Economy


  • Under Pradhan Mantri Mudra Yojana (PMMY) over 11.29 crore loans amounting to Rs. 6.41 lakh crore have been disbursed across the country during FY 2019-20 and FY 2020-21 

About Pradhan Mantri Mudra Yojana:

  • The Union Government launched the Pradhan Mantri MUDRA Yojana (PMMY) on April 8, 2015, to provide loans up to Rs. 10 lakhs to non-farm small/microenterprises and non-corporate.
  • All banks, including Public Sector Banks, Private Sector Banks, Regional Rural Banks (RRBs), State Co-operative Banks, Urban Co-operative Banks, Foreign Banks, and Non Banking Finance Companies (NBFCs)/Micro Finance Institutions (MFIs), are required to lend to non-farm sector income-generating activities with a value of less than Rs.10 lakh under the PMMY.
  • These loans are categorized as MUDRA loans under

Institutional Mechanism:

  • The government has established a new institution called MUDRA (Micro Units Growth & Refinance Agency Ltd.) to carry out the Scheme's development and refinancing activities, as well as serve as a regulator for the microfinance sector in general.
  • PMMY's mission is to provide grants to small businesses that are not corporations. Loan offerings under PMMY

Category of Loans:

  • Shishu: covering loans up to Rs. 50,000/- given with no collateral, at 1% rate of interest/month repayable over a period of 5 years.
  • Kishor: cover loans above Rs. 50,000/- and up to Rs. 5 lakh.
  • Tarun: cover loans beyond Rs. 5 lakh to Rs. 10 lakh.

Approach of PMMY

  • Enterprises in the smallest segment must receive at least 60% of the funding. MUDRA Bank's partner intermediaries must strive to adhere to the following general framework:
  • First-time entrepreneurs, young entrepreneurs (those under 30 years old), and women entrepreneurs will be welcomed, with special schemes being planned for them.
  • Cash flow-based lending would be prioritized over security-based lending. Collateral securities, among other things, must be avoided.
  • Repayment commitments shall be flexible and framed in light of the entrepreneur's company cash flows.

About Micro Units Development Refinance Agency (MUDRA) Bank

  • The Micro Units Development Refinance Agency (MUDRA) Bank is a microfinance refinancing institution. of SIDBI and renamed as MUDRA (SIDBI) Bank.
  • The MUDRA Bank is primarily responsible for –
    • Developing policy guidelines for the micro/small enterprise financing industry, as well as registering and regulating MFI organizations.
    • MFI organizations are accredited and rated.
    • Establishing responsible lending policies to avoid indebtedness and to ensure proper client security principles and recovery methods.
    • Creating a standardized set of covenants for last-mile lending to micro and small businesses.
    • Promoting appropriate technological strategies for the final mile.
    • Creating and implementing a Credit Guarantee System to provide loan guarantees to micro-enterprises.
  • Creating a good architecture of Last Mile Credit Delivery to micro businesses under the scheme of Pradhan Mantri Mudra Yojana.
  • MUDRA Bank operates through regional level financing institutions who in turn connects with last-mile lenders like Micro Finance Institutions (MFIs), Small Banks, Primary Credit Cooperative Societies, Self Help Groups (SHGs), NBFC (other than MFI) and such other lending institutions.
  • In lending, MUDRA gives priority to enterprises set up by the under-privileged sections of the society particularly those from the scheduled caste/tribe (SC/ST) groups, first-generation entrepreneurs and existing small businesses.