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Home / UPSC Editorials / MUDRA 2.0

Launching Pradhan Mantri Mudra Yojana or Mudra Scheme 2.0 | UPSC Editorials

Last Updated on Aug 29, 2024
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The scheme MUDRA 1.0 or MUDRA Scheme or Pradhan Mantri Mudra Yojana (PMMY) was launched by the Central government headed by Prime Minister Narendra Modi in 2015. It was christened as the Pradhan Mantri MUDRA Yojana (PMMY) that aims to foster a robust ecosystem of entrepreneurship in India. With many of the objectives achieved, it is anticipated that Phase II of Pradhan Mantri Mudra Yojana (PMMY) or MUDRA 2.0 may be launched by the Government of India.

MUDRA or Micro Units Development & Refinance Agency Limited is a financial institution established by the Government of India to develop and refinance micro unit enterprises. MUDRA provides funding to the non-corporate small business sector through banks, Non Banking Financial Corporations (NBFCs) and Micro Finance Institutions (MFIs).

Analysis Based on

Editorial published in Indian Express on anticipation of launch of MUDRA 2.0 after the grand success of MUDRA 1.0

Topics for Prelims

Union Budget, Non Performing Assets (NPA), Credit Management, Enhance Credit Guarantee Scheme, Reserve Bank of India (RBI), Government Schemes, Categories of MUDRA Loan 

Topics for Mains

Financial Inclusion, Entrepreneurship, Financial Literacy, Budgeting, Banking Reforms, Empowerment of Marginalized Section

Why was the MUDRA Scheme Launched?

India has an added advantage of demographic dividend which very few countries have, and there are a huge number of skilled and semi-skilled people who can generate employment through various economic activities. However, they face difficulty in accessing quality and affordable resources so that they can engage themselves in entrepreneurship, especially those who belongs to vulnerable section of the society such as Scheduled Castes (SCs), Scheduled Tribes (STs), Other Backward Classes (OBCs), women, etc. Also, people from rural areas are at a bigger disadvantaged position than their urban counterparts.

To address this issue, the Central government came up with the idea of promoting entrepreneurship among youths so that they become a ‘job provider’ rather than just a ‘job seeker.’

The MUDRA scheme offers collateral-free micro-loans up to ₹10 lakh and it targets small and micro-enterprises which contribute significantly to the grassroots economy. As the next phase, MUDRA 2.0, is anticipated, and thus it is sine qua non to evaluate the successes, shortcomings and challenges of MUDRA 1.0 so that progressive steps can be taken further 

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Successes of MUDRA Scheme 1.0 or Pradhan Mantri Mudra Yojana (PMMY)

The scheme was launched with much fanfare in order to reap the advantage of demographic dividend in 2015 as India is a land with 65% population below the age of 35 and around 50% below the age of 25, which makes it essential to promote the culture of entrepreneurship among the youths. The scheme Pradhan Mantri Mudra Yojana has achieved many milestones such as:

  • MUDRA 1.0 or Pradhan Mantri Mudra Yojana has successfully disbursed more than ₹27.75 lakh crore to around 47 crore small and new entrepreneurs which puts a great impact on the grassroot economy of India.
  • The scheme Pradhan Mantri Mudra Yojana (PMMY) has played a very instrumental role in providing financial support to individuals who were previously excluded from formal credit systems and were exploited by the moneylenders.It has promoted economic inclusivity and financial inclusion.
  • It is heartening to know that around 69% of MUDRA loan accounts are held by women, and 51% are owned by entrepreneurs from Scheduled Caste (SCs), Scheduled Tribes (STs) and OBC communities.
  • This focus on weaker sections of the society has fostered gender equality and social equity, enhancing participation in economic growth. 
  • MUDRA 1.0 has contributed to a significant number of job creation, especially in rural and semi-urban areas. It has supported small businesses and self-employment due to which economic opportunities for underserved communities have increased.

Challenges Faced by MUDRA 1.0 or Pradhan Mantri Mudra Yojana (PMMY)

Though this scheme has achieved many of its goals and that’s why Phase II of this scheme is anticipated, but it has faced certain challenges at formulation as well as implementation level. These are the following challenges faced by MUDRA 1.0 or Pradhan Mantri Mudra Yojana (PMMY): 

  • Uneven Distribution of Credit: Despite the scheme's major focus on financial inclusion, the loan disbursement was unequal or uneven, with some of the more developed districts receiving disproportionate amounts. For instance, in 2021-22, the top 10 districts received over ₹26,000 crore in loans which is almost equal to the total amount sanctioned for the bottom 318 districts combined. This disparity shows that rural and most backward regions which are meant to be the primary beneficiaries of Pradhan Mantri Mudra Yojana (PMMY) are lagging in accessing MUDRA loans. 
  • Lack of Proper Monitoring and Implementation: Poor monitoring combined with improper implementation of MUDRA Scheme or Pradhan Mantri Mudra Yojana (PMMY) have undermined the effectiveness of the scheme. It has led to a loss of trust among the beneficiaries and financial institutions. 
  • Lack of Financial Literacy Among Beneficiaries: As only 27% of total population in India is financially literate, many MUDRA beneficiaries who are basically from the most disadvantaged section of the society lack financial management skills. This has led to financial mismanagement and defaults.
  • High NPAs in Kishore and Shishu Categories: The key categories like Kishore and Shishu under MUDRA Scheme have experienced high NPAs. This happened due to lack of business acumen and experience among the beneficiaries and also due to some systemic issues such as inadequate support and mentorship. 

Proposed Changes for MUDRA 2.0 to Address Challenges 

There is a need for proper research and analysis of all parameters related to Phase I of MUDRA Scheme or Pradhan Mantri Mudra Yojana (PMMY). However, with latest data available, following key changes can be introduced in the scheme to expand its outreach and effectiveness:

  • More Focus on Expanding Outreach: Shifting focus on expanding outreach in rural and semi-urban areas is crucial for better outcomes
  • Launching Programs to Enhance Financial Literacy: A nationwide program or initiative to enhance financial literacy among entrepreneurs especially micro and small ones should be a cornerstone of MUDRA scheme 2.0. Basic things like interest rates, credit management, taxes on transactions etc should be taught.
  • Enhanced Credit Guarantee Scheme (ECGS): MUDRA Scheme 2.0 should incorporate an Enhanced Credit Guarantee Scheme (ECGS) to reduce any kind of risk for stakeholders like financial institutions so that they don't find it difficult to lend more and more.
  • Implementing Robust Monitoring and Evaluation Framework (RMEF): Implementing a Robust Monitoring and Evaluation Framework (RMEF) is necessary for ensuring transparency, efficiency, and effectiveness. Use of technology liken blockchain, robotics, internet of things should be promoted to make the system efficient and foolproof

Conclusion 

While MUDRA 1.0 or Pradhan Mantri Mudra Yojana (PMMY) or MUDRA Scheme has made significant progress in developing the ecosystem of entrepreneurship and financial inclusivity, its challenges surely highlights the need for a more comprehensive approach for launching MUDRA 2.0. By expanding its outreach among the new age entrepreneurs, enhancing digital and financial literacy, introducing new and innovative methods for better credit guarantees and implementing a foolproof robust monitoring framework,the MUDRA 2.0 can build on the successes of its predecessor and address its shortcomings. 

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