Pradhan Mantri MUDRA Yojana 

#GS2 #Schemes  

Union Cabinet chaired by Prime Minister Shri Narendra Modi today approved approved a scheme for interest subvention of 2% for a period of 12 months, to all Shishu loan accounts under Pradhan Mantri Mudra Yojana (PMMY) to eligible borrowers. 

  • The scheme will be extended to loans which meet the following criteria - outstanding as on 31st March, 2020; and not in Non-Performing Asset (NPA) category, as per Reserve Bank of India (RBI) guidelines, on 31st March 2020 and during the period of operation of the Scheme. 
  • The interest subvention would be payable for the months in which the accounts are not in NPA category including for the months that the account becomes a performing asset again, after turning NPA. The scheme will incentivize people who will make regular repayments of loans.  
  • The estimated cost of the Scheme would be approximately Rs. 1,542 crore which would be provided by the Government of India. 

Background 

  • This Scheme is for implementation of one of the measures relating to MSMEs, announced under the Atma Nirbhar Bharat Abhiyan.  
  • Under PMMY, loans for income generating activities up to Rs. 50,000 are termed as Shishu loans.  
  • PMMY loans are extended by Member Lending Institutions viz. Scheduled Commercial Banks, Non Banking Finance Companies and Micro Financial Institutions, registered with Mudra Ltd. 
  • The ongoing COVID-19 crisis and the consequent lockdown has led to severe disruption of business for micro and small enterprises which are funded through Shishu Mudra loans.  
  • Small businesses typically function on thin operating margins, and the current lockdown has had a severe impact on their cash flows, jeopardizing their ability to service their loans. This could lead to default in repayment and have a resultant impact on access to institutional credit in future. 
  • As on 31st March 2020, about 9.37 crore loan accounts under the Shishu category of PMMY with a total loan amount of about Rs 1.62 Lakh crore, were outstanding. 

Implementation strategy

  • The Scheme will be implemented through the Small Industries Development Bank of India (SIDBI) and will be in operation for 12 months. 
  • For borrowers, who have been allowed a moratorium by their respective lenders, as permitted by RBI under the ‘COVID 19 Regulatory Package’, the Scheme would commence post completion of the moratorium period till a period of 12 months i.e. from September 01, 2020 till August 31, 2021. For other borrowers, the scheme would commence w.e.f. June 01, 2020 till May 31, 2021. 

Major Impact 

  • The Scheme has been formulated as a specific response to an unprecedented situation and aims to alleviate financial stress for borrowers at the ‘bottom of the pyramid’ by reducing their cost of credit.  
  • The Scheme is expected to provide much needed relief to the sector, thereby enabling small businesses to continue functioning without laying off employees due to lack of funds. 
  • By supporting small businesses to continue functioning during these times of crisis, the Scheme is also expected to have a positive impact on the economy and support its revival, which is necessary for employment generation in future. 
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