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Mudra loans have been touted as a gamechanger in making unsecured credit available to those engaged in small businesses who are outside the corporate sector. Launched in 2015, the Pradhan Mantri MUDRA Yojana (PMMY) provides loans up to Rs 10 lakh to non-corporate, non-farm small/micro interprises. Loans are given by banks, Micro Finance Institutions (MFI) and Non Banking Finance Companies (NBFC). Three types of loans are given: Shishu is upto Rs 50,000; Kishore is Rs 50,000 upto Rs 5 lakh; and Tarun is Rs 5 lakh to Rs 10 lakh.

The figures are indeed impressive. The Mudra website claims Rs 18 lakh crore loans have been given to some 35 crore loan accounts. Tamil Nadu is said to be the leader with Rs 1.9 lakh crore being disbursed through 4 crore loan accounts. The Union government has taken ads in Tamil Nadu newspapers touting this as an instance of its support to Tamil Nadu. If each of these loans had been disbursed to separate individuals, every two out of three adults in Tamil Nadu would have got a loan of slightly less than Rs 50,000 in seven years. But in practice multiple loans are given to same people or entities.

For instance, small businesses would have likely received several loans successively over the years, after repayment of each loan. These are counted as multiple loan accounts. Economists say they should technically be one loan account.

Loans taken multiple times in a year for working capital needs are not uncommon either. But we should have still seen lakhs and lakhs of beneficiaries from Mudra loans in Tamil Nadu, if not a crore or above. And anecdotally, that does not seem to be the case.

The actual loans advanced by Mudra Bank through refinance was only along a few thousands of crores of rupees every year for the entire nation.

The Micro Units Development & Refinance Agency Ltd (MUDRA) was set up by the Government of India (GoI). MUDRA was initially formed as a wholly owned subsidiary of Small Industries Development bank of India (SIDBI) with 100% capital being contributed by it, as per the Mudra Bank website. Presently, the authorized capital of Mudra Bank is Rs 1,000 crores and paid up capital is 750 crore, fully subscribed by SIDBI. Setting up of the MUDRA bank was announced by finance minister Arun Jaitley in his 2015-16 budget speech.

Mudra is a refinancing Institution. Mudra does not lend directly to micro entrepreneurs, individuals.

In 2015-16, outstanding loans of Mudra Bank on March 31 was Rs 2,800 crore as per its annual report. This grew to Rs 11,834 crore in 2018-19 and so on. In 2019-20, outstanding loans stood at Rs 9,004 crore.

In 2020-21, the Mudra Bank had a total outstanding of Rs 13,537 crore as against Rs 9,004 crore previous year, which saw a fall likely due to the pandemic. The actual loans advanced by Mudra Bank through refinance was only along a few thousands of crores of rupees every year for the entire nation.

This in effect means the numbers shown as Mudra loans or PMMY loans include those given out under various other government schemes and likely other routine transactions. The PMMY performance report does indicate all the other schemes that are accounted in PMMY, raising the possibility of double counting of loans given and loan accounts.

Banks and microfinance institutions report that they are routinely asked to file information on small loans they advanced to small businesses to the Ministry of Finance for Mudra portal. But only a few percentage points of NBFC lending is actually refinanced by Mudra Bank.

The numbers shown as Mudra loans or PMMY loans include those given out under various other government schemes and likely other routine transactions.

If the original source of these NBFC loans was public sector banks, then it raises the possibility of double counting. In case the source of the NBFC funds was private banks, the government would have played no role in advancing the loans but the loans were still likely counted as PMMY loans. This raises the possibility that the same loan advanced by an NBFC has been counted under various schemes including as PMMY loan or Mudra loan.

The Mudra loan looks like a generic term for small loans given by all financial institutions in the country and quite likely involves double or triple counting.


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