MUDRA Scheme: A Game Changer Initiative on Job Creation

TEAM INCLUSION

Modi Government Generates 5.5 Crore Jobs Through Mudra Loans. Incremental Job generation due to PMMY pegged at 1.7 crore in two years

Introduction

Job creation, unarguably, is one of the most critical issues facing not only the Indian economy but also the world as a whole. Job creation is critically important not only from an economic point of view but it also has a wider impact on social indicators such as health and education, and even law and order. Several governments have been voted in on the promise of jobs and voted out of the power if this promise is not met. The Bharatiya Janata Party (BJP) led NDA alliance also won the 2014 Indian general election with a thumping majority on the promise of according a high priority to job creation. Prime Minister Narendra Modi’s government has been working on several fronts to create employment opportunities, as has been the case with previous governments.

However, the Pradhan Mantri MUDRA (Micro Units Development and Refinance Agency) Yojana, introduced in April 2015, is proving to be a game changer. Why do we call it a game changer? This is because the impact it has had on promoting entrepreneurship and job creation is impressive.

As there is no official data available on the impact of the MUDRA scheme on the job market, Skoch Group decided to conduct a ground level study. We have analysed primary data collected from Micro Units Development and Refinance Agency (MUDRA), banks, financial institutions and also beneficiaries of the scheme. The findings show interesting results.

The MUDRA Yojana has really been the biggest, and one of the most cost effective tools, for job creation. Our research and ground level analysis show that around 5.5 crore jobs have been created in the two years which have passed since the initiation of the scheme. This should be music to the ears of all policymakers’ as there have been huge debates on whether India is witnessing a jobless growth. Traditional data on unemployment indicates that the Modi government has not been able to make any headway in job creation. As per the 5th Annual Employment-Unemployment Survey Report published by Ministry of Labour, the unemployment rate in India stood at 5 per cent in 2015-16, marginally higher than the 4.9 per cent recorded in 2013-14. The survey includes data both from formal and informal parts of the economy, as well as those working as casual workers in public works programmes.

However, are we getting a correct picture of the employment scenario through this data? We need to look beyond! Small entrepreneurs, notably at the village level, who have been the biggest beneficiaries of the MUDRA Yojana, create jobs which laregely go unnoticed in traditional economic analysis and surveys. Moreover, employment doesn’t necessarily mean holding a formal job. Self-employment is equally important, if not more. The MUDRA Yojana is focused on creating and helping small entrepreneurs. This scheme has successfully created an ecosystem of entrepreneurs at the ground level. Moreover, the disbursement of loans to small entrepreneurs through this scheme has had a multiplier effect on job creation. So far, Rs 3.42 lakh crore of MUDRA loans have been provided to over 8 crore people, most of whom are small entrepreneurs. A majority of these people were not previously involved in any business activity. MUDRA loans are available for non-agricultural activities upto Rs 10 lakh. Activities allied to agriculture such as dairy, poultry, bee keeping etc, are also covered. So the beneficiaries are not from agriculture sector.

Another noteworthy thing about the MUDRA scheme is that it is inclusive. Its focus has been on the underprivileged section of the society. Nearly half of the beneficiaries under the scheme belong to underprivileged class. This includes 20 per cent from Scheduled Caste category, 5 per cent from Scheduled Tribe category and 35 per cent from Other Backward Classes. Over 70 per cent beneficiaries are women. This clearly indicates that the scheme is well targeted. Lending under MUDRA scheme has been higher than the government targets and projections. Beating targets is an achievement and bodes well sign for any scheme, as is the case with MUDRA. However, it also poses a challenge. High disbursements have been made by government-run banks and financial institutions. This might have been done to meet targets. As the loans are collateral free, a proper risk evaluation is crucially important. The success of the scheme in the longrun will largely depend on proper risk evaluation and management.

Why This Report?

There are various estimates and multiple sources of statistical data available on jobs and unemployment in India. Even different government departments present different estimates of the country’s unemployment scenario. The Labour Bureau of the Ministry of Labour and Employment releases job related data through its Annual Employment- Unemployment Survey. The Census of India - conducted every 10 years - also releases data on unemployment. We also get similar data through the National Sample Survey Office (NSSO) and the annual Economic Survey reports of the Ministry of Finance. Industry lobby groups and several private and non-government institutions also independently release data on jobs. But there are significant gaps in all of these as none of them present a comprehensive picture in a timely manner.

The problems are on both fronts. One, the data is not released in a timely manner and the second, they are not comprehensive and thus do not present a true picture. Most of the data released by the government has a time lag of two-three years, or even more. For instance, the 4th Annual Employment-Unemployment Survey report released in early 2016 was based on a survey conducted by the Labour Bureau during the period of January 2014 to July 2014. The field work for the latest Fifth Annual Employment- Unemployment Survey was done between April 2015 and December 2015. Therefore, there is a time lag in these reports of around two years. Census data on the other hand takes even longer.

Moreover, there is no consistency in the data released by even various government departments, let alone other sources. As per the 4th Annual Employment-Unemployment Survey report of the Labour Bureau, the unemployment rate stood at 4.9 per cent nationally with a rate of 4.7 per cent recorded in rural areas, and 5.5 per cent in urban areas. As per the 5th Annual Employment-Unemployment Survey the unemployment rate rose to 5 per cent nationally with rural sector unemployment at 5.1 per cent and urban sector unemployment at 4.9 per cent.

According to the NSSO on the other hand, the unemployment rate stood at 2.7 per cent. This included 2.3 per cent for rural areas and 3.8 per cent for urban areas. (http:// pib.nic.in/newsite/PrintRelease. aspx?relid=136875)

According to the latest International Labour Organisation (ILO) report, unemployment rate in India stood at 3.5 per cent in 2016 and it is expected to decline marginally to 3.4 per cent in 2017. However, in absolute terms the number of unemployed people is expected to rise to 18 million by 2018 from 17.7 million in 2016. As per the ILO’s World Employment and Social Outlook report released in May 2017, the global unemployment rate is expected to rise modestly from 5.7 to 5.8 per cent in 2017 as the pace of labour force growth outstrips job creation.

There are several gaps and inconsistencies in these unemployment estimates. The Fifth Annual Employment-Unemployment Survey report is based on a total sample of 156,563 households. It includes 88,783 households from rural India and 67,780 households from urban India. Persons aged 15 years and above who are willing to work are covered in this survey. The current methodology is unsuitable for measuring underemployment, disguised employment, and the seasonality of labour force. Likewise, it also does not capture the effects of migration on employment.

The government has also admitted that the available data on employment generated through different sources is not timely and reliable. In fact, the Modi government has set up a task force headed by NITI Aayog Vice-Chairman to formulate a methodology to generate timely and reliable employment data.

SKOCH Group has been studying financial inclusion from its very inception and has concluded several times that Public Sector Banks (PSBs) have focused on bigger ticket lending to a small number of customers.The MUDRA Yojana has brought about the first major change by including MFIs and NBFC MFIs in its fold - and their outstanding performance at the bottom of the pyramid under this scheme is a testimony to that fact. Whichever box you tick, the fact is that there has been an enormous focus brought in on livelihood-linked credit—irrespective of who the lender is. Rather than the absolute amount disbursed, a better way to analyse the success of MUDRA is to look at the number of beneficiaries. No scheme since independence has been able to benefit so many people in such a small amount of time.

This report by SKOCH Group is an attempt to fill gaps in the timely and reliable reporting of data on employment. True, the task is humongous. So, we are not claiming that this is going to fill all the gaps. This report focuses on job linkages to a specific scheme - MUDRA. There is no official data on it. So, this report is definitely going to a trailblazer as far as the MUDRA scheme’s linkage to job creation is concerned.

Methodology

This report is based on primary data collected from Micro Units Development and Refinance Agency Ltd (MUDRA Ltd), banks, financial institutions and beneficiaries of the scheme. Data available with MUDRA, banks and financial institutions primarily pertains to the opening of accounts and the quantum of loan disbursal. They do not capture any numbers on employment generation.

SKOCH conducted a survey amongst beneficiaries to gauge the impact of MUDRA loans on job creation. We took into consideration direct employment as well as indirect employment generated with a particular amount of disbursed loan.

We approached various stakeholders, especially Public Sector Banks (PSBs) to collect data on job creation. While PSBs worked in conjunction with their zonal heads and respective branches to collect this data, SKOCH worked simultaneously, following the expert route and with Community Based Organisations (CBOs) conducting field surveys and holding focus group discussions to assess the impact. The effort was to go down to the bottom most layer and contact direct beneficiaries to understand the real situation on the ground. The data thus gathered by five major PSBs, namely State Bank of India, Punjab National Bank, Vijaya Bank, Corporation Bank and Union Bank of India, in addition to SKOCH’s own research and survey, provided us with real-time data. These major banks hold a 5.76 per cent share of total MUDRA accounts opened between April 2015-June 2017.

In addition to this, SKOCH’s own time-line research and data, collected as a result of conducting periodic financial and digital literacy awareness programmes for Village Level Entrepreneurs (VLEs), enabled feedback through a reliable fieldbased mechanism. Collaboration with CBOs provided a grassroots level input to re-assess the data as much as the whetting and insight from experts at every level of research.

SKOCH has therefore attempted to explore this very crucial aspect of the MUDRA Yojana, which has paved the way for creation of jobs that the country desperately needs. This exercise hopes to provide answers to questions such as where are the jobs in India? Why is there so much hype given to MUDRA? How many jobs have really been created under this scheme? It is to be noted that SKOCH has been actively studying the impact of the MUDRA Yojana right from its inception and has already published several reports on its success.

Methodology for Deriving Job Data

The overall data on the number of bank accounts opened, under MUDRA scheme, between April 2015 and June 2017 is segregated on the basis of performance by States and Financial Institutions. The data on job generation that we have gathered from 5 major PSB’s was analysed and segregated on the basis of jobs generated per scheme between the period of April 2015-June 2017. To reach a final number of jobs created nationwide through MUDRA in the same timeframe, we applied the conversion rate of jobs created per 100 accounts. We applied this on national MUDRA data for accounts opened.

Process Flow

MUDRA Ltd was approached to obtain overall performance data of PMMY.

Public sector banks were approached to provide data on their MUDRA performance and jobs generated.

Banks spoke to their divisions who in turn spoke to a cross section of branches. The branches approached a number of loan beneficiaries to estimate jobs created across each category of loan.

Based on loans and category-wise job averages, banks submitted their national job generation figures to us.

The participating banks were:

a. State Bank of India

b. Punjab National Bank

c. Union Bank of India

d. Corporation Bank

e. Vijaya Bank

Together they represent 5.76 per cent of total accounts opened nationally and a 19.19 per cent share of amount disbursed

Extrapolating their average job generation category-wise to cumulative category-wise accounts opened nationally, we arrived at the number of direct jobs created nationally.

Through direct discussions with field based organisations, bankers and loan beneficiaries, we arrived at the multiplier for indirect jobs created per direct job category-wise. The multipliers are as follows:

Scheme

  Indirect jobs per Direct job

a. Shishu

0.25

b. Kishore

1

c. Tarun    

2

 

Brief Overview Of Mudra Scheme

Prime Minister Narendra Modi launched Pradhan Mantri MUDRA Yojana (PMMY) on 8 April 2015 with an objective to provide access to institutional finance to small business units and entrepreneurs in the country. The Micro Units Development and Refinance Agency Ltd (MUDRA) was set up through a statutory enactment. It is responsible for developing and refinancing through PMMY, all MFIs, which are in the business of lending to micro/small business entities engaged in manufacturing, trading and service activities. MUDRA has partnered with State/Regional level coordinators to provide finance to last-mile financiers of small/micro business enterprises. Further, the approach goes beyond credit only approach and offers a credit plus solution for these enterprises spread across the country. (http://pib.nic.in/newsite/PrintRelease.aspx?relid=118005)

We have to be very clear that MUDRA is not a government grant. This is a scheme run on commercial considerations. The PMMY is a demand driven scheme, and all loans proposals are considered on commercial merits.

The loans are extended under the MUDRA scheme by banks and Micro-Finance Institutions (MFIs) in three categories:

a.    Shishu (loans upto Rs 50,000);

b.    Kishore (loans from Rs 50001 to Rs 5 lakh);

c.    Tarun (loans from Rs 5 lakh to Rs 10 lakh)

The names 'Shishu', 'Kishore' and 'Tarun' signify the stage of growth/development and funding needs of a micro business unit and entrepreneur. It also provides a reference point for the next phase of graduation/growth for the entrepreneur to aspire for. The type of businesses covered under the scheme is quite comprehensive. It includes proprietorship/partnership firms running as small manufacturing units, shopkeepers, fruits/vegetable sellers, hair cutting saloon, beauty parlours, transporters, truck operators, hawkers, co-operatives or body of individuals, food service units, repair shops, machine operators, small industries, artisans, food processors, Self Help Groups (SHGs), professionals and service providers etc in rural and urban areas with financing requirements upto Rs10 lakh.

The three primary factors, which led to the introduction of PMMY are:

The favourable climate of MSME sector;

The financial inclusion of the vulnerable groups; and,

Setting up a catalyst, which will drive both direct and indirect employment generation. 

The informal sector constitutes nearly 93 per cent of the Indian work force and is mostly unorganised, where a majority works in pitiable conditions, lacking basic labour standards, absence of written job contract, paid leave, social security with little or no access to trade unions. Before 1991, there were two kinds of industries that existed in India, i.e., large and small (largely unorganised). In the case of small scale Industries, they were not required to register mandatorily. For instance, according to the MSME census, out of 36.17 million MSMEs, the registered MSME segment comprises of merely 1.54 million units, whereas the remaining 96 per cent of the MSMEs were found to be unregistered informal sector. In addition, of these 1.54 million MSMEs almost 95 per cent are 'micro', 4.8 per cent are 'small' and 0.2 per cent are 'medium'. On the other hand, if both the registered and unregistered MSME are taken into account, the 'micro' units engaged in manufacturing, processing, trading and services make the broad base providing employment outside agriculture and collectively referred to as the Non-Corporate Small Business Sector (NCSBS). More importantly, 94 per cent of these 'micro' enterprises, are Own Account Enterprises (OAEs) run by individuals belonging to financially weaker segment comprising of SCs, STs or OBCs. The loans to start or continue their business comes mostly from the local moneylenders, friends and relatives and they face enormous challenges to access formal credit system, despite having maximum job potential. Therefore, it became imperative to provide access to credit for these vulnerable groups and entrepreneurs who had zero or little access to formal sources of funding.

Mudra: The Journey So Far

The achievements of the MUDRA scheme have gone beyond expectations and made a substantial difference at the ground. The total number of loans advanced under the scheme has reached 8.7 crore till August 13th, 2017. Small women entrepreneurs and business units run by women are the biggest beneficiaries of the scheme. 

Under the Mudra Yojana, since inception till August 13th, 2017 - out of the total 8.7 crore loans distributed, 6.56 crore were given to women. A total amount of Rs 3.75 lakh crore amount was sanctioned under the scheme, out of which Rs 1.88 lakh crore went to women. Total sanctioned amount under the scheme stood at Rs 3.63 lakh crore, out of which Rs 1.66 lakh crore was loaned to women. The target for the financial year 2016-17 was Rs 180,000 crore, while the actual sanctioned amount exceed the target rising to Rs 180,528 crore, which indicate the success of the scheme.

Under the MUDRA scheme banks have been mandated by the Reserve Bank of India (RBI) not to insist for collateral security in the case of loans of up to Rs 10 lakh extended to the units in the MSME sector.This has enabled persons from humble and poor backgrounds to avail MUDRA loans. For enabling smooth functioning in the budget for FY2015- 16, a separate Credit Guarantee Fund was created for MUDRA loans, with an initial corpus of Rs 3,000 crore. The National Credit Guarantee Trustee Company (NCGTC), a subsidiary of SIDBI managing various credit guarantee funds, is the implementing agency for MUDRA Credit Guarantee Scheme. Moreover, a rigorous credit appraisal, which ensures that loss does not fully fall on the lender but only 50 per cent is borne by the lender and the rest varies on the lender’s rating and NPA performance. Through periodic awareness campaigns and stakeholder meetings, MUDRA imparts customer literacy on the demand-side and advocates use of technology on the supply-side.

A total of 27 Public Sector Banks, 17 Private Sector Banks, 31 Regional Rural Banks, 4 Co-Operative Banks, 36 Micro-Finance Institutions and 25 Non-Banking Financial Institutions have currently been allowed to disburse MUDRA loans. Nearly 60 per cent of the loans under this scheme are set to be offered through the ‘Shishu’ option and the rest 40 per cent are to be done through ‘Kishore’ and ‘Tarun’ schemes.

Figure 1 depicts loan-wise details where during the year 2015-16, the total number of MUDRA accounts opened was 3,48,80,924, out of which, Shishu loans were availed by 3,24,01,046. In the year 2016-17, the total number of MUDRA accounts opened was 3,97,01,047, out of which Shishu’s share was 3,64,97,813. During April-June 2017 (FY2017-18) a total of 79,97,654 accounts were opened out of which 73,77,121 were Shishu accounts.

The total amount sanctioned for 2015-16 and 2016-17 was Rs 1,37,449.27 and Rs 1,80,528 crore respectively. During the year 2016-17, MUDRA loans have crossed the target of Rs 1,80,000 crore and therefore for the year 2017-18, the Union Budget has announced a target of Rs 2.44 lakh crore. Of the amount sanctioned during all the three years, Shishu has remained on top. It is to be noted that there is no processing fee for loans up to Rs 50,000 in Shishu category.

Figure 1: Accounts opened per scheme  | Figure 2: Accounts opened in different socio-economic scenarios

The second year 2016-17 saw certain pertinent changes such as the focus of the Central Government towards scaling MUDRA loans in backward districts to reach the unreached and mainstreaming the micro-enterprises involved in activities allied with agriculture within the ambit of PMMY loans. Moreover, the overdraft amount of Rs 5,000 sanctioned under PMJDY is also treated as part of MUDRA loans under PMMY.

Figure 2 depicts the major categorywise accounts opened from 2015 till June 30, 2017. A total of 8,25,79,625 accounts were opened cumulatively, out of which 4,59,21,086 belong to vulnerable groups comprising of SCs, STs and OBCs, which is more than 50 per cent. Although the figures for 2017 are for a quarter, the trend seems to be relatively good and is expected to move higher in the coming months as the budget earmarked for the current fiscal is Rs 60 lakh higher in comparison to the last fiscal.

Two of the important sections within the vulnerable groups are women and minorities. It is to be noted that India has one of the lowest female labour force participation rates in the world, ranking 120th among the 131 countries and only 27 per cent of women, 15 years or older, are working or actively looking for a job. Therefore, a scheme, which pays special attention to job creation among women and promotes entrepreneurship is of extreme eminence. MUDRA is one of the schemes where so far 6,17,08,198 accounts have been opened for women, which is nearly 75 per cent of the total accounts opened so far under MUDRA scheme. This is one of the remarkable achievements of MUDRA. Even for accounts belonging to minorities the number stood at an impressive 1,00,47,235.

The magnitude of bank loans disbursed to unfunded and underfunded segments is an indicator of the emergence of this category of borrowers as a key driver of demand for credit. It is important to glance the overall account opening under the three different categories bankwise since 2015. For 2015-17, the total number of bank accounts has shown a steady increase especially in the Shishu category. The total number of bank accounts opened so far under Shishu stands at 7,62,75,980, whereas for Kishore and Tarun it is 52,51,183 and 10,52,462 respectively. Shishu contributes to 92 per cent of the total accounts opened in all the banks under the MUDRA scheme, out of which, the NBFC-MFI constitutes 59 per cent of Shishu accounts.

The total amount disbursed by banks up to June 2017 across the three loan categories amounts to Rs 3,42,010 crore with Shishu loans having the highest share. From amongst different lenders, i.e., PSBs, MFIs, NBFCs etc, the PSBs have the largest share at Rs 13,076 crore. NBFCMFIs are the second highest with Rs 12,542 crore and also top in Shishu loans, which denote the importance of these institutions in the microcredit and small loans. Private sector banks and RRBs figuring in third and fourth places have also contributed in the development of the scheme.

Key Findings 

MUDRA Yojana has led to the creation of a total number of 54,479,763 jobs. This includes 37,753,217 direct jobs and 16,726,545 indirect jobs. Out of the total jobs created, 47.77 per cent were created under the Scheduled Castes, Scheduled Tribes and Other Backward Class categories.

To reach a final number of jobs created nationwide through MUDRA over the same timeframe we applied the conversion rate of jobs created per 100 accounts. We applied this on national MUDRA data for accounts opened. It concluded that 3.77 crore Direct Jobs were generated through MUDRA till June end 2017. Figure 3 shows number of direct jobs created across all MUDRA schemes.

Indirect Jobs

The following Methodology was adopted to derive the number of indirect jobs, we gathered information from CBOs, VLEs, direct beneficiaries and experts. In addition, reference was also made to the literature available on job creation in the MSME sector. It was concluded that under the Shishu scheme 1 direct job leads to the creation of 0.25 indirect jobs. For Kishore, 1 direct job creates 1 indirect job and under Tarun, 1 direct job creates 2 indirect jobs. Figure 4 shows the impact of MUDRA on job creation—1.67 crore indirect jobs; 5.44 crore total jobs (direct+indirect).

The amount of disbursement allotted to generate one direct job, after data analysis came out to be Rs 90,591. This number was substantiated by comparing the total amount disbursed in three years by the total number of direct jobs created in three years. This amount allotted to generate employment in the MSME sector is very good since the sector is in a progressive stage and has got a lot of potential to excel. This will further push the financial inclusion dream that the government expects to realise sooner than later. Table 1 explains the number of jobs created against disbursements.

Table 1

the loan-wise accounts opened. It can be seen that Shishu has the maximum number of jobs of 3,02,63,087 followed by Kishore and Tarun with a direct job figures of 58,19,486 and 16,70,643. On the whole, the cumulative number of direct jobs in all the three loan types under MUDRA is 3,77,53,217.

In case of the indirect jobs as seen in Table 3, the number of indirect jobs created is high amongst Shishu with 75,65,771, whereas the number of jobs created for Kishore and Tarun are 58,19,486 and 33,41,286 respectively and the total number of indirect jobs is 1,67,26,545.

Table 2 & 3

SKOCH endeavours that the data secured from banks should be utilised to derive the overall employment figures of MUDRA, which will serve the purpose of analysing how the MUDRA Yojana has benefited the vulnerable and needy sections of society in availing loans and generating jobs. Therefore, Figure 5 shows the importance of Shishu category loans, which generated a significant number of jobs totalling to 3,78,28,859. Kishore and Tarun have a total of 1,16,38,973 and 50,11,930 respectively. On the whole, the MUDRA scheme has generated 5,44,79,763 credible jobs. By creating these jobs, PMMY is estimated to have benefitted more than 7.45 crore small businesses.

One of the observations, which is pertinent here, concerning job creation under MUDRA scheme, is the number of jobs created per 100 accounts opened. It is seen that 158 jobs are created for every 100 accounts opened in the Tarun category, whereas in the case of Kishore and Shishu it is 110 and 39 respectively. Tarun is higher in terms of job average because the loan amount ranges from Rs 5,00,000 to 10,00,000, which can generate more direct as well as indirect jobs. Shishu, on the other hand, is a loan ranging below Rs 50,000 and therefore has a smaller average in job creation.

Jobs Generated in Various Social Segments

Figure 6 pertains to the direct jobs created. It can be seen that the jobs created in total are 3,77,43,039. In the general category it is 1,82,70,280, while in the vulnerable groups—SC, ST and OBC—it is 60,78,918; 16,46,052; and, 1,17,47,787 respectively totalling to 1,94,72,758, which is more than 50 per cent of the total jobs.

In case of indirect jobs shown in Figure 7, the total jobs created are 1,67,15,075, whereas it is 1,01,70,115 in the general category while for the vulnerable groups—SCs, STs and OBCs—it is 18,62,579; 5,64,612; and 41,17,767 respectively totalling to 1,67,15,075 in direct jobs.

Figure 8 depicts the total number jobs, which includes direct and indirect jobs created by MUDRA for all the categories which is 5,44,79,763. Amongst the vulnerable groups, OBC tops with 1,58,65,555, while SC and ST with 79,41,498 and 22,10,665 comes at second and third spot respectively.

Mudra Outreach In States

It is also important to understand the development of MUDRA loans state-wise, which reveals the amount of loans availed by each state and quantum of loans sanctioned by the Central Government and the subsequent disbursement of funds, which has yielded a considerable number of job creation supporting the national growth.

State-wise sanctioned amount can be inferred from Figure 9, where Tamil Nadu tops with Rs 23,014 crore followed by Karnataka and Maharashtra with Rs 21,954 and Rs 19,966.

In case of state-wise MUDRA loan disbursement, again the three states namely Tamil Nadu (Rs 38,138 crore), Karnataka (Rs 37,541 crore) and Maharashtra (Rs 32,890 crore), as seen in Figure 10, are much higher than the sanctioned amount and shows the pro-activeness of the state in garnering the MUDRA funds amounting to a total of 31.74 per cent from the overall disbursal to states. The other two states which follow these are Uttar Pradesh and West Bengal.

The number of direct jobs created at state-level is given in Figure 11, which indicates that Tamil Nadu has generated more direct jobs than any other state with a total of 48,57,598. Karnataka with jobs numbering 41,01,236 and Maharashtra with 31,90,131 have secured the second and third positions in creating the highest number of direct jobs in this category. The total number of direct jobs created stood at 3,56,70,709.

Figure 12 shows the the comparative state-wise details of the number of indirect jobs generated under the MUDRA scheme. Like in direct jobs, the three states, i.e., Tamil Nadu, Karnataka and Maharashtra have generated the highest number of indirect jobs too, with 19,11,334; 18,63,704; and, 14,73,272 respectively. The overall indirect jobs created for all the states combined totals to 1,61,93,054. 

The cumulative number of both direct and indirect jobs for all states comes to 5,44,79,763 as seen in Figure 13 below. Out of the total of number of jobs it is seen that Tamil Nadu, Karnataka and Maharashtra ranks the first three places with total jobs of 67,68,932; 59,64,941; and, 46,63,404 respectively contributing to 33 per cent of the total jobs created by the states.

It is equally important to understand the jobs created per 100 A/Cs, which will also give the performance of each state pertaining to jobs created. It can be inferred from Figure 14 that Jammu & Kashmir tops the list with 94 average. But it is to be noted that the number of MUDRA accounts opened was just 1,67,116, whereas in the case of Tamil Nadu it is 1,17,41,814, averaging to 44 jobs created per 100 accounts opened. But the absolute value of jobs created in Tamil Nadu is highest depicting the successful efforts of the state.

Incremental Jobs Created

Banks and financial institutions were providing loans to small businesses even before MUDRA. Now all the small lending in that category is put under MUDRA scheme. So it is desirable to see what exactly has changed due to MUDRA. The scheme has given a substantial push to small lending to businesses. The findings reveal that the total number of incremental direct jobs created due to MUDRA scheme in the past two years stood at 11,696,576. It also led to generation of 5,146,494 indirect jobs. Thus the total number of incremental jobs generated in two years stood at 16,843,070.

Methodology Adopted For Incremental Data

1.    Little or no public data available on performance of <10 Lakh MUDRA equivalent loans before launch of the scheme.

2.    In April-June 2016, we conducted interviews with senior bankers and got disbursement numbers for PSBs over 2012-13, 2013-14 & 2014-15. Numbers for 2014-15, i.e., Rs 33,300 crore were published in INCLUSION April-June 2016.

3.    These numbers showed an average growth of 14.57 per cent.

4.    For 2015-16, MUDRA Ltd had published a disbursement figure of Rs 59,674 crore by PSBs, which meant an 80 per cent growth due to introduction of PMMY.

5.    In INCLUSION issue of April-June 2016, we mentioned this number as inflated due to double counting of some assets between NBFC/MFI and PSBs.

6.    Later, MUDRA  Ltd revised this figure down to Rs 56,127 crore meaning a growth of 69 per cent. 

7.    Based on this Delta on disbursements and taking the value of Rs 90,591 credit/direct job we have calculated the number of incremental direct and indirect jobs created due to introduction of PMMY.

 

Incremental Jobs created: 

1.    Total number of incremental direct jobs (from 8 April 2015 to 31 March 2017) generated: 11,696,576 (Table 6).

2.    Total number of incremental indirect jobs (from 8 April 2015 to 31 March 2017) generated: 5,146,494 (Table 6).

3.    Sum total of incremental direct and indirect jobs generated through MUDRA scheme: 16,843,070

We have analysed the loan disbursal trends of PSBs in the MUDRA scheme equivalent category, i.e., loan amount of less than Rs 10 lakh. Table 4 explains the trends in the loan disbursal in the category of less than Rs 10 lakh. We have analysed the data from financial year 2012-13 to 2016-17. In this category the loan disbursal stood at Rs 25,400 crore during the financial year 2012- 13. It rose to Rs 30,100 crore in the financial year 2013-14, registering a growth of 18.5 per cent.

In 2014-15 the growth in the amount disbursal slowed to 10.63 per cent taking the total amount to Rs 33,300 crore. In the year 2015- 16, when the MUDRA scheme was launched, the total loan disbursal in the category surged to Rs 56,127 crore, registering an annual jump of 68.55 per cent. MUDRA Yojana was launch on 8 April 2015, almost at the beginning of the financial year 2015-16. This surge in lending was clearly due to the MUDRA scheme. In financial year 2016-17, loan disbursal rose further to Rs 68,448 crore, posting an annual growth of 21.95 per cent. This table explains the incremental growth registered due to MUDRA scheme.

Even before MUDRA scheme, banks and financial institutions were extending loans to small businesses, albeit at a slower pace. Table 5 shows that had the MUDRA scheme not been introduced the total loans extended in the financial year 2015-16 would have been Rs 38,148 crore, while due to MUDRA scheme this amount surged to Rs 56,127 crore (Table 4). Similarly, for the financial year 2016-17, the total disbursal of loan in the category would have been Rs 43,703 crore, while due to MUDRA scheme push it rose to Rs 68,448 crore.

Challenges & Recommendations

RISK EVALUATION: Lending under MUDRA scheme has been higher than the government targets and projections. Beating the targets is an achievement and good sign for any scheme, so is the case with the MUDRA. However, it poses a challenge. High disbursements have been done by government-run banks and financial institutions. This might have been done to meet targets. As the loans are collateral free, a proper risk evaluation is crucially important. The success of the scheme in the long-run will largely depend on proper risk evaluation and management.

NPAs: Banks, especially some of the PSBs, are already under severe strain due to high Non-Performing Assets. NPAs of some of the banks have reached an alarming stage. Any further strain would be really disastrous for them. So they must be extra careful and ensure that the new scheme is not making their balance sheets worse. However, this needs to be highlighted that the banks’ financial stress today is not due to the defaults on small lending, but because of the big defaulters. Several big companies and corporate leaders have defaulted on loans worth billions of dollars while the track record of small borrowers such as SHGs has been far better. Nonetheless, banks need to be careful and ensure that the loans given under the MUDRA scheme do not turn into bad loans.

CREDIT ASSESSMENT: Assessment of credit worthiness is a complex and challenging job. In the case of small businesses and traders this is even more challenging as they normally don’t have a credit history. The RBI should create a single platform to assess the creditworthiness of small businesses and entrepreneurs. This will reduce the risks of the lending banks and financial institutions and make the process hassle free.

GEOGREPHICAL SPREAD: Over 70 per cent of the total disbursal under the MUDRA scheme is concentrated in 10 states. Traditionally, industrially advanced states like Tamil Nadu, Karnataka and Maharashtra have got the lion’s share, while backward states, especially north eastern states lag far behind. Economically backward states need such schemes the most. Some mechanism must be devised to access areas, which are hard to reach.

SIMPLIFICATION: Dealing with banks has been a cumbersome process. This has been one of the reasons for the small businesses and entrepreneurs to remain outside the institutional financing system. Schemes such as the Pradhan Mantri Jan Dhan Yojana (PMJDY) and MUDRA scheme have made the process simpler. However, there is scope for much more simplification. Further simplification of forms and processes and an intensive publicity campaign would go a long way in making the scheme more effective and popular.  

CREDIT RECOVERY: As per current estimates, the extent of bad loans under the MUDRA Yojana is low. It is estimated to be only around 2 per cent. This is too good a number to believe. However, we have to understand that the scheme is in a nascent stage. NPAs may go up sharply if proper credit management is not done.

GRIEVANCE REDRESSAL: During our interaction with the targeted beneficiaries, one of the major challenges and concerns that emerged was grievance redressal system. This is a new scheme covering a huge and diverse section of the society. Crores of new people have been brought under the institutional financing system. However, nothing much has been done to improve the grievance redressal system. There is a need for substantial improvement within grievance redressal mechanism.

FOCUS ON RURAL INDIA: AAccess to institutional financing through MUDRA could be a harbinger for alleviating rural distress. Life for those living in rural India is full of uncertainties. They often get hit by droughts or floods. This makes them vulnerable. The MUDRA Yojana is playing an important role in making the rural youth look for employment opportunities in sectors other than agriculture where underemployment is high. This is very important not only from an economic point of view but also from a social and law and order perspective. Rise in unemployment often leads to social unrest. MUDRA could play a pivotal role in bringing prosperity in rural India and curbing potential social unrest

Conclusion

The basic stated objective of the MUDRA Yojana is to “fund the unfunded”. Small businesses not only in India but across the world find it difficult to raise money. While the Non-Corporate Small Business Sector, is one of the largest disaggregated business ecosystems in the world sustaining around 50 crore lives, these hard-working entrepreneurs find it difficult to access institutional finance. These entrepreneurs are largely self-financed or rely on personal networks or moneylenders. According to the NSSO Survey of 2013, there are nearly 5.77 crore small business units in India. MUDRA has succeeded not only in providing access to institutional finance to these 5.77 crore small business units but has also provided a fillip to entrepreneurship across the country. This is evident from the number of new loan accounts opened under the scheme.

SKOCH has been studying financial inclusion from its very inception and has concluded several times that the PSBs have focused on bigger ticket lending to a fewer number of customers. PMMY has brought about the first major change by including MFIs and NBFC MFIs within its fold, and their outstanding performance at the bottom of the pyramid under this scheme is a testimony to this fact. Whichever box you tick, the fact is that there has been an enormous focus brought in on livelihood-linked credit—irrespective of who the lender is. Rather than the absolute amount disbursed, a better way to analyse the success of MUDRA is to look at the number of beneficiaries. No scheme since independence has been able to benefit so many and so fast. Given the trend as analysed above in the report, it is expected that the number of jobs created will substantially increase from 5.44 crore today where it stands today.

The MUDRA Yojana has been found to be the best performing scheme till date undoubtedly even from the perspective of creating entrepreneurship and providing institutional working capital—which small entrepreneurs as well as enterprises in the unorganised sector never had access to. Still, there are certain areas, which need to be taken care of. For instance, approximately 70 percent of disbursals are concentrated in 10 states and efforts must be taken to really penetrate into the ‘hardto- reach-areas’ since the segment of population, which is targeted has vast untapped potential but needs funding support to match its aspirations. In addition, SKOCH believes that stabilisation of Cloud, Aadhar and Mobile (CAM) is expected to improve MUDRA loans in a big way. One of the areas where MUDRA has been criticized initially is slow progress of RuPay cards for easy transactions of loan money. This has to be taken care of at present to match the number of accounts and corresponding disbursal of funds. There are laudable efforts in terms of expanding MUDRA’s reach by sector and one such effort by the government is formulating a new model under the MUDRA Yojana for providing credit to the handloom sector—benefiting 5 lakh weavers— which can be emulated by other relevant ministries.

From the perspective of social as well as financial inclusion, MUDRA can be termed as a successful initiative. Its focus has been on the underprivileged sections of society. Nearly half of the beneficiaries under the scheme belong to underprivileged class. This includes 20 per cent of the SCs, 5 per cent STs and 35 per cent from Other Backward Classes. Over 70 per cent beneficiaries are women. This clearly indicates that the scheme is well targeted.

The MUDRA Yojana has had a very positive impact on the rural economy. This has led to an upswing in the rural consumption in the past two years. Our study reveals that there is around 30-40 per cent increase in rural consumption driven by MUDRA loan scheme. Increase in jobs and improved economic activity has had to a positive socio-economic impact.

Overall, PMMY has been a success so far, in creating new jobs and entrepreneurs across the country and is expected to become one of the fastest vehicles to carry financial and social inclusion supported by policy and technology tools.

(Comments are welcome at info@skoch.in)

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