Right from the early days, the Modi Government has wanted to essentially change the exclusion culture that was surreptitiously built in the six decades after independence: excluding those at the fringe and at the bottom of the pyramid! It made the new policymakers restless in their quest for equitable entrepreneurial development through nook and corner of our vast country. In this regard, two schemes viz. PM Jan Dhan Yojana and MUDRA loans have changed the landscape of financial inclusion, both deposit, and lending, in this country with the promise of new independence to the entrepreneurial spirit of the country.
In the last seven years, Banks (including RRBs)/NBFCs/MFIs have together disbursed 35.32 crore MUDRA loans for an amount totaling around Rs 18.4 lakh crore, translating into an average of Rs 52,000 loan for the smallest of borrowers. Around two-thirds of these loans are sanctioned to Women entrepreneurs. Assuming that each unit employs a minimum 2 persons, on a conservative basis, these units are providing employment in excess of 10 crores of individuals.
The Government, aware of the varied needs of those a little short on financial understanding but rich with business acumen and dreams to make it big, created three categories of MUDRA loans to take care of different categories of entrepreneurs exclusively, SHISHU, TARUN & KISHOR. The guiding philosophy was that over time, a SHISHU loanee will not remain in SHISHU category forever, it will grow into a TARUN, a TARUN will become a KISHOR with time and so forth, ensuring equity and prosperity!
But, Government had to overcome many challenges post-2014. There was no enabling system in place. No architecture or infrastructure to anchor the humongous volumes proposed. The Government disciplined the prevailing culture by building an atmosphere of trust that was mutual. The government was promoting entrepreneurship through a clean model and on such a colossal scale that was never tried before. There were opportunities for growth and income generation but the people who were on the margins were not sure whether their spirit of entrepreneurship would receive the enthusiastic support from the banking system.
The creation of a guarantee trust (CGFMU) by the Government ensured Banks and other Financial intermediaries became confident in loan acceptance and disbursals. Loans up to Rs 10 lakhs now enjoy a guarantee from the Federal Government-sponsored Trust. Lenders have the additional comfort to lend without asking for any other collateral security. Soon this became an all-encompassing phenomenon whereby ordinary citizens of this country found the portals of big financial entities open for them seamlessly!
The Government also used technology to deliver and monitor the process. Banking Correspondents were roped in to promote wider acceptance of the scheme and to make people familiar with the scheme particulars and nitty-gritties.
There are many fascinating success stories of empowerment of people, through the MUDRA scheme. Many of such success stories belong to women borrowers who have established themselves at the forefront of livelihood support to their families and even provide employment to other families. They have freed themselves from the perennial bondages of informal money lenders and have scaled up with finance from Banks. Women beneficiaries make two-third of MUDRA loanees, many of them coming from socially disadvantaged groups changing the socio-cultural fabric of the country.
These success stories remind that micro business through hardships and follies, through turmoil and challenges can only grow bigger! No challenge could break their indomitable spirit and resilience.
The country also witnessed the resolute spirit of entrepreneurial India during Covid phase. Some learned people said that there would be great stress in the system, the sticky loans will grow manifold. But, to their dismay, the system was strong enough to come through unscathed. The government kept the pledge to support this fearless new breed of business class intact. Government also introduced a 2% interest subvention scheme to lessen the burden of borrowers to a great extent that continues till today.
A new digital India has been unfolding that is revolutionizing our financial systems. Today, India has a streamlined system that helps a person to use a Bank’s app to apply for a loan from the comfort of his/her home. New opportunities are being created witnessing NBFCs and Micro Finance institutions joining hands with Banks/RRBs to dole out MUDRA loans in. Corporates are finding new supply chains. There is a multiplier effect in play, one rupee of credit given is making much more in the circular economy. There are social securities embedded, for the borrowers and their families that was never thought of before! Going forward, various government welfare schemes and promotional schemes in agriculture and MSME could be better integrated with MUDRA schemes, as also better usage of fin-tech and start-up ecosystem to bring forth an immersive, 360 degrees development perspective that transcends boundaries.
MUDRA is a success story that just goes on to show how right political intent can meet socio-economic-cultural forces for a multiplier effect on change that is sustainable and equitable. We, somehow believe that this is just the beginning of AMRIT KAAL for an entrepreneurial India that believes in itself!
(The author, Soumya Kanti Ghosh is Group Chief Economic Advisor, State Bank of India. Views are personal)
