Wednesday, January 13, 2016


This refers to ‘Of Rs 71,000 crore in Mudra loans, government credit Rs 2,000 crore’ (The Indian Express, January 12, /Qqt218688). The report by Sunny Verma tried to paint Mudra as being only a “rebranding” exercise and portrayed the government’s contribution as just Rs 2,000 crore out of the Rs 71,000 crore that has been lent under the programme. Mudra is a redesign of policy in order to re-target the audience, restructure processes and, most importantly, rejuvenate the mission of lending to the small, poor budding entrepreneur.
In order to understand the objection to the report, we need to answer three basic questions on the Mudra Yojana. First, why was Mudra launched? The programme was launched to give access to cheap credit to poor and small fledgling businesspersons. Even after 67 years of independence, a large section of the unorganised sector had no access to formal credit and used to have to rely on money lenders, who charge exorbitant rates of interest.
Yes, schemes for this class did exist before as well — but poor design and a lack of awareness ensured that the target audience did not receive the intended benefits. There was no nationwide initiative, and lending was left to the discretion of individual banks. Even loans of less than Rs 10 lakh were not readily available or forthcoming. Second, what did Mudra do? For starters, the government has made sure that the poor are not subjected to the requirements of collateral and guarantor to get credit. This has made the entire process for getting a loan easier, so that the poor don’t have to face as many roadblocks.
The government has classified loans into three groups — Shishu, Tarun and Kishor — to cater to the different needs of different sections of entrepreneurs. There have been other qualitative improvements as well: Mudra debit cards are issued to borrowers. Using these, they can withdraw the loan from any ATM in India, as and when they need the money. Debtors can also now repay the loan at any time and at any ATM in India. Provisions have been made to make possible daily withdrawals or repayments.
The interest on Mudra loans is calculated on a daily basis. When all this is taken into account, it becomes clear that the programme is a boon for small businesspersons. Third, and last, how has Mudra made a difference? The massive awareness and huge demand for Mudra loans is a result of the government’s efforts. While certain similar schemes have been announced before, there was no awareness around them.
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