Chidambaram attacks MUDRA scheme, asks what business can be done with a loan of ₹50,000

Congress leader P Chidambaram on Sunday said that 83% of loans disbursed under the Pradhan Mantri MUDRA Yojana (PMMY) were under ₹50,000, leaving the former finance minister wondering what kind of business can be done today with a loan of that amount.

The MUDRA loan scheme, which completed eight years last week, has seen banks and financial institutions sanction over 40.82 crore loans amounting to ₹23.2 lakh crore.

Taking a jibe at the ruling party, Chidambaram tweeted that ₹19,25,600 crore of loans have been given to borrowers at the rate of ₹50,000 or less. "It leaves me wondering what kind of business can be done today with a loan of Rs 50,000?" he wrote on Twitter.

Launched by Prime Minister Narendra Modi on April 8, 2015, the MUDRA loan scheme aims to facilitate easy collateral-free micro-credit of up to ₹10 lakh to non-corporate, non-farm small and micro-entrepreneurs for income-generating activities.

The loans under PMMY are provided by banks, non-banking financial companies (NBFCs), micro finance institutions (MFIs) and other financial intermediaries.

Under the MUDRA scheme, the loans have been divided into three categories based on the need for finance and stage in maturity of the business. These are Shishu (loans up to ₹50,000), Kishore (loans above ₹50,000 and up to ₹5 lakh), and Tarun (loans above ₹5 lakh and up to ₹10 lakh).

Loans under PMMY are provided to meet both term loan and working capital components of financing for income generating activities in manufacturing, trading and service sectors, including activities allied to agriculture such as poultry, dairy, beekeeping, etc. The rate of interest is decided by lending institutions in terms of RBI guidelines. In case of working capital facility, interest is charged only on money held overnight by borrower.

"The scheme has enabled easy and hassle-free access to credit to micro-enterprises and has helped a large number of young entrepreneurs establish their businesses," Union Minister for Finance Nirmala Sitharaman said last week.

Since the launch of the scheme, as of March 24, 2023, about ₹23.2 lakh crore has been sanctioned in 40.82 crore loan accounts. "About 68% of accounts under the scheme belong to women entrepreneurs and 51% of accounts belong to entrepreneurs of SC/ST and OBC categories," Sitharaman said, adding this demonstrates that easy availability of credit to the budding entrepreneurs of the country has led to innovation and sustained increase in per capita income.

"The growth of MSMEs has contributed massively to the 'Make in India' programme as strong domestic MSMEs lead to increased indigenous production both for domestic markets as well as for exports. The PMMY scheme has helped in the generation of large-scale employment opportunities at the grassroots level and also has proved to be a game changer while boosting the Indian economy," she added.

Commenting on the completion of eight years of MUDRA, Union Minister of State for Finance Bhagwat Kisanrao Karad said, "The PMMY scheme aims to provide collateral free access to credit in a seamless manner to micro enterprises in the country. It has brought the unserved and under-served sections of the society within the framework of institutional credit. The government policy of promoting MUDRA has led millions of MSME enterprises in the formal economy and has helped them to get out of the clutches of money-lenders offering very high cost funds."