GS 2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

    What is the PM MUDRA scheme?

    • The Pradhan Mantri MUDRA Yojana (PMMY) is a central government scheme launched in 2015 to provide funding and credit to the country’s micro and small enterprises (MSEs). MUDRA is an acronym for “Micro Units Development and Refinance Agency.
    • The scheme’s objective is to promote youth and women entrepreneurship and encourage small business growth.

    Categories of loans under the PM MUDRA scheme

    • Under the PM MUDRA Scheme, loans up to Rs. 10 lakhs are provided to non-farm or non-corporate small/micro enterprises entities. 
    • The loans are provided in three categories: Shishu (up to Rs. 50,000), Kishor (from Rs. 50,001 to Rs. 5 lakhs), and Tarun (from Rs. 5,00,001 to Rs. 10 lakhs). 
    • Banks, microfinance institutions, and other financial institutions provide the loans.

    Need for the PM MUDRA scheme

    Lack of access to credit

    • Many small and micro-enterprises in India face difficulty accessing credit from formal financial institutions due to a lack of collateral, credit history, and documentation. 
    • The PM MUDRA Scheme aims to provide collateral-free loans to these enterprises, thereby improving their access to credit. 

    Promoting entrepreneurship

    • The scheme aims to promote entrepreneurship skills among the youth and women by providing them financial assistance and support services. 
    • This can help in creating more job opportunities and promoting economic growth. 

    Supporting the MSME sector

    • The MSME sector is crucial to the Indian economy as it contributes significantly to employment generation and GDP. 
    • The PM MUDRA Scheme aims to support this sector by providing funding and support services to small and micro-enterprises. 

    Inclusive growth

    • The scheme aims to promote inclusive growth by reaching out to the underserved and marginalised sections of society, such as women, SC/STs, and minorities, who often struggle to access credit and other financial services. 

    Encouraging formalisation

    • The PM MUDRA Scheme encourages small and micro-enterprises to formalise their businesses by providing funding and support services. This can help improve their access to other financial services, such as insurance and banking, and can contribute to the formalisation of the Indian economy.

    Criticisms of the PM MUDRA Scheme

    High Default Rates

    • One of the PMs MUDRA Scheme’s main criticisms is its high default rates. 
    • Some borrowers have been unable to repay the loans, leading to a rise in non-performing assets (NPAs) for banks and other financial institutions. This has led to concerns about the sustainability of the scheme in the long term. 

    Limited Reach

    • Despite the success of the PM MUDRA Scheme in providing funding and support services to small and micro-enterprises, there are concerns that the scheme has a limited reach, and many small and micro-enterprises are still unable to access credit from formal financial institutions. 

    Lack of Monitoring

    • Some critics have also pointed out a lack of effective monitoring of the loans provided under the PM MUDRA Scheme, which has led to instances of misuse and diversion of funds. 

    Lack of Focus on Employment Generation

    • While the PM MUDRA Scheme aims to promote entrepreneurship and support small and micro-enterprises, some critics have argued that the scheme lacks a specific focus on employment generation, which is a key objective of the scheme. 

    Insufficient Support Services

    • Some beneficiaries of the PM MUDRA Scheme have also expressed concerns about the lack of sufficient support services, such as training and skill development, counselling, and assistance in preparing project reports, which are essential for the growth and development of small and micro-enterprises.