The Mudra scheme is a crucial outreach programme of the Central government that aims at supporting small and medium businesses by way of collateral-free loans up to Rs 10 lakh and free them from the clutches of the moneylenders, who charge exorbitant interest rates. To assess the impact of Pradhan Mantri Mudra Yojana (PMMY) more than two years after its launch, The Indian Express met a number of Mudra borrowers in the districts of Bareilly and Pilibhit in Uttar Pradesh, over a dozen bankers in these two cities and several applicants who tried, but failed to get Mudra loans.
Three early trends emerge from this on-the-ground assessment: One, existing businesses with transaction history have found it much easier to take Mudra loans and have, thereby, benefited from these funds, which were available at one-third of the cost as compared to raising them from the money lender. Two, new businesses or those having limited transaction history found it extremely difficult to raise Mudra loans, especially funds of over Rs 50,000. Three, there are early signs of a portion of these loans — 1.5 per cent as on December 30, 2016 — turning into non-performing assets (NPAs). Bankers dealing directly with Mudra loans said that they are facing irregular payments in the case of a large number of Mudra loans below Rs 50,000 per person.
Since the launch of the PMMY on April 8, 2015, loans disbursed by banks and microfinance institutions for non-corporate small borrowers, for income-generating activities in the non-farm segment are being termed as Mudra loans. A total of Rs 1.75 lakh crore worth of Mudra loans were disbursed in 2016-17, as compared to Rs 1.33 lakh crore in 2015-16, according to the data available on Mudra website. Interest rate on these loans ranges from 9-12 per cent.
While Mudra loans are extended by banks, regional rural banks and micro-finance institutions, Micro Units Development and Refinance Agency Ltd or Mudra is a firm that provides refinance for such loans. As on March 31, 2016, the outstanding refinance portfolio of Mudra stood at Rs 3,291.66 crore.
THE MUDRA BORROWERS
NADEEMUL HASAN, 46, is the owner of CSM Traders, an SME unit based in Alamgiriganj in Bareilly manufacturing shoe material and ladies sandals. Hasan, who was having regular transaction history with banks, took a Mudra loan of Rs 10 lakh from a Punjab National Bank (PNB) branch. The loan helped him buy cheaper inputs for his manufacturing unit, nearly 70 per cent of which are imported from China. “Vyapar mein paise ki killat kisko nahin hai? Hum udhar mein maal kharidte hain toh bahut mehngi padti hai, nakad mein sasti milti hai. (Who does not face shortage of funds in business? Inputs we buy on credit are much costlier than bought on cash),” says Hasan, who employs 3-7 artisans depending upon the demand for his products. “Holi, Eid aur shaadion mein zyada kaam hota hai (We get higher orders during Holi, Eid and wedding season).” he said, adding that his unit sells to distributors and retailers within a range of 100-125 kilometer of Bareilly.
When asked about how he got Mudra loan, Hasan said the bank checked his business, income tax returns and track record over the years before giving the loan. The fact that Hasan owned his manufacturing unit building in Alamgiriganj and repaid Rs 1 lakh loans he had taken earlier in 1995 under the Pradhan Mantri Rozgar Yojana on time, helped him secure the Mudra loan. “Agar hum yahi loan sahukar se lete toh hame 3 guna byaz dena padta aur usko security ke liye apna maal de ke rakhna padta. (Had I taken a similar loan from the money lender, then I would have to pay 3-times the interest rate and had to deposit my stocks as security with him),” he said.
JASPREET KAUR, 26, took a loan of Rs 50,000 from State Bank of India (SBI) to add women’s cosmetic products to her family’s existing shop selling ready-made garments. She deposits an equated-monthly instalment or EMI of Rs 1,250 for the loan. After adding the cosmetic products, Kaur says her monthly earnings increased by Rs 1,000. Right now, she deposits her EMI in cash at the CB Ganj branch of SBI in Bareilly and plans to get an auto debit done in future. “Bank ko loan amount zyada dena chahiye. (Bank should increase the loan amount),” Kaur says.
SHIV NANDAN, 35, runs a shoe manufacturing unit in Chandausi in Sambhal district, nearly 70 kilometer from Bareilly. He took a Mudra loan of Rs 2 lakh from PNB and repays an instalment of around Rs 2,000 per month. A resident of Bareilly, Nandan says that the loan helped him expand production at his unit and he could manage a turnover of Rs 7-8 lakh last year. From daily manufacturing of 16-24 pair of shoe earlier, he increased the production to 48-60 pair of shoes in a day. Branded as Z-Lee shoes, these are priced in the range of Rs 250-600 per pair, giving him a profit margin of around 25-30 per cent. To build a transaction history, which will help him take loan of a higher amount in future, Nandan says that he has been doing over 50 per cent of his receipts and payments transactions online.
MUNAWWAR KHAN, 28, makes wood furniture and has taken a loan of Rs 50,000 for his business from one of the SBI’s branches in Bareilly. Khan, having an EMI of Rs 1,250, has been irregular in his repayment of the loan, a branch officer dealing with his loan says. When asked why he took the loan, Khan says, “Zaroorat thi bhi, nahin bhi thi, bass loan ho gaya. (I felt like taking the loan and not taking the loan, but ended up taking it).” The loan benefits big business but is not of much help for micro entrepreneurs, he says. “Bankon ko byaz dar ghatani chahiye. Payment 2-3 din late hi jaata hai to penalty lag jaati hai (Banks should reduce their interest rate. If loan repayment is delayed by 2-3 days, then banks impose a penalty),” he says.
ZAKI AHMAD owns a shop selling molded plastic furniture in Puranpur in Pilibhit district, around 60 km from Bareilly. He has taken a Mudra loan of Rs 5 lakh from Union Bank of India originally at interest rate of 11.85 per cent, which has fallen subsequently. Ahmad says he found it easier to take Mudra loan due to less paperwork, lower stamp duty and no need for providing any security. Since I owned the shop on the main street and had transactions with the banks, I could get loan easily, he said. “Par agar koi naya vyapari loan lene jaata hai, toh usko badi mushkil hoti hai. Bank usko kehte hain ke abhi target nahin hai, phir aana, baad mein aana. (A new businessman finds it very difficult to take a Mudra loan. Banks tell him that they don’t have target or funds for Mudra loans, come later),” Ahmad says.
Bareilly’s Shailesh Kumar and Begusarai’s (Bihar) Rajan Mahto shared their stories of how they were not given Mudra loans despite many attempts at various banks. While Kumar was seeking loan for investing in a watertank insulation jacket manufacturing firm, Mahto tried for Mudra loan to expand at his shop selling mobiles. “I got a loan for buying a car but not for investing in the business,” Kumar says. Mahto says that he could not get loan from Bihar Gramin Bank despite series of attempts. “Bank sirf daudata hai, par loan nahin deta (Bank only makes you run, but does not provide loan),” Mahto said.
Even as new borrowers complain of banks being reticent in extending Mudra loans to them, lenders face the twin challenge of helping small/new businesses as well as ensuring that loans get repaid on time. Especially since these are collateral-free loans, banks are cautious in giving loans to new borrowers. More so, since some of the Mudra loans have already turned into non-performing assets (NPAs) and there are irregular repayments in many loan accounts.
THE FEAR OF NPAs
As much as 1.5 per cent of the total disbursement of Mudra loans or Rs 2,955.51 crore have turned into NPAs as on December 30, 2016, according to data from the finance ministry. With the government aggressively promoting Mudra loans, borrowers have come to see them as their right. “So, even if they don’t have the repayment capacity or a viable business plan, they feel that it is their right to take Mudra loans,” says a branch manager at Puranpur branch of a state-owned bank. This feeling of the right for a loan, coupled with the recent farm loan waiver announced by the UP government, has set the ground for Mudra loans turning into NPAs.
“We have already started facing problems with repayments. Nearly 10-20 per cent of the loans given by our bank are not being serviced regularly, these loans have the seeds of turning into NPAs. With the UP government announcing loan waiver in the state, borrowers feel that Mudra loans will also be waived off in due course,” the branch manager says. Another bank officer says that many borrowers think of Mudra loans as something similar to those that are given under the Prime Minister’s Rozgar Yojana. “They feel these will be waived off, eventually, like it was done in the past,” he said.
A bank officer, directly in-charge of Mudra loans in Bareilly, was even more alarmist in his assessment of such loans. “As many as 40-50 per cent of our total Mudra loans of up to Rs 50,000 to borrowers have turned irregular in their payments. We have to go after them for recoveries, which also is a costly affair. For an EMI of Rs 1,200 on a Rs 50,000-crore loan which remains unpaid, we have to spend nearly Rs 300-400 on petrol and other expenses to reach the person to seek repayments, apart from the time that is wasted,” says the officer with an SBI branch in Bareilly.
When asked about NPAs in the case of Mudra loans, finance minister Arun Jaitley had said last month that disbursement was rising and there were no NPAs. “Bilkul badhotri ho rahi hai, aur jitne chote log hain jo paisa le rahe hain bank se, usme koi NPA nahin hai, sab lauta dete hain. Yeh jo NPAs hain, yeh kewal 40-50 bade log hain. Toh is liye Mudra mein agar pichhle saal jab Rs 1,80,000 crore gaya toh iss saal Rs 2,44,000 crore jaane waala hai. (Mudra loans are rising, and all small people who take such loans, there are no NPAs there, they repay their loans. These NPAs largely pertain to 40-50 large corporates. Therefore, if last year, Rs 1.8 lakh crore of Mudra loans were disbursed, the disbursement will cross Rs 2.44 lakh crore this year),” Jaitley had said on June 1, at a press conference to mark three years of the Narendra Modi government.
From the banks’ point of view, automobile loans and electric-rickshaw loans are the best form of Mudra loans, as the security gets created as soon as the loan is provided. For most other Mudra loans, there is no collateral for the bank to turn to in the case of non-repayment.