Introduction

In a developing country with a sizeable population base like India, MSMEs business unit plays an indispensable role by providing employment to a large number of people. The contribution of Micro, Small, and Medium Enterprise (MSME) in India’s GDP is around 29% and the target of the government is to increase it to 50% by 2025. MSMEs face a lot of issues in acquiring finance i.e., lack of collateral securities and consultancy support, financial illiteracy, lack of information, high borrowing cost, etc. (Khatri, 2019). The main issue for them is a lack of collateral securities because small business units do not have the finance to run their business, and because of their small amount of profit they are not able to sum up financial assets during their lifetime to use them as collateral securities for getting formal loans from commercial and cooperative banks.

Due to the lack of collateral securities, they have to take loans from unorganized sectors at a very high interest rate. To remove these hurdles, the Government of India has introduced the Micro Unit Development and Refinance Agency (MUDRA) scheme for funding the unfunded sections of the society. Manish and Ritesh (2017) found that the MUDRA Scheme will help the Indian government in achieving its target of financial inclusion.

In order to address issues like poverty, income inequality, and underdeveloped industries in an economy, financial inclusion is a key instrument. The process of ensuring that all society segments, especially the less affluent and weaker parts, have access to financial services at a reasonable price is known as financial inclusion (Sarma, 2008). The concept of financial inclusion was first used by RBI Governor Shri Y.V. Reddy in 2005. While taking a step forward in this direction, the Government of India introduced a scheme to provide access to financial services to all segments of society called MUDRA by a statutory enactment on 8 April 2015 with a slogan of “funding the unfunded”. MUDRA will provide refinance support to MFI, banks and NBFC for providing working capital and term loans to micro business units engaged in manufacturing, trading, and service activities for up to 10 lakh rupees. MUDRA loan is provided for a variety of purposes across all bank branches in India i.e., business loan to vendor / shopkeeper, loan for working capital & equipment financing, transport vehicle used only for commercial purpose and for agri-allied activities.

Review of Literature

Over the past few decades, the value of an inclusive financial system has gained widespread recognition, and many nations have made it as a policy priority (Kempson et al., 2004). The micro finance schemes play an import role in achieving the target of financial inclusion at micro level in an economy. Kumar (2015) also found that micro finance helps in poverty alleviation, women entrepreneurship, equal distribution of wealth, financial education, financial inclusion, economic growth, and mobilization of savings. There are a lot of studies which have shown a favorable impact of micro-finance schemes on income and expenditure (Hossain, 1988; and Morris and Barnes, 2005). Mehar L (2014) has shown that with an advancement in technology in the last few years, financial inclusion has increased but there is still a need to work on it. The government must take some more innovative steps to improve the reach of finance to poor sections of society and financial literacy must be increased in rural area. Chandraiah and Vani (2014) conducted a study on problem of MSMEs sector in India. The study concluded that MSMEs sector face key challenges such as high cost of access to credit, lack of access to global capital, low technology level, requirement of collateral securities, and inadequate infrastructure facilities etc. It also examined the issues faced by MSMEs in acquiring finance due to lack of collateral & financial assets. Similarly, Roy (2016) conducted a study on the role of MUDRA scheme in providing loans to MSMEs sectors. It analyzed the role of MUDRA Yojana in developing micro units in India and concluded that MUDRA scheme plays an important role in developing micro units in India. Gupta and Sharma (2017) conducted a study on the performance of the MUDRA Yojana in India, in solving the problem of finance of new and small business units. The study concluded that the MUDRA scheme helps micro units in acquiring finance without much hurdle. They concluded that the MUDRA scheme helps the MSMEs to acquire loan without collateral security.

Lall (2018) tries to analyse the performance of the MUDRA Yojana in Uttarakhand in India in uplifting the micro and small business units. The study concluded that MUDRA Yojana fulfills its objective of providing loans to the unfunded. The study concluded that the MUDRA scheme is very successful in the Uttarakhand district. Rajani et al., (2019) conducted a study regarding the constraints faced by small business entrepreneurs in attaining credit facilities under the MUDRA Yojana from commercial banks in Ernakulam district, Kerala in India. They concluded that the major problem for micro units to acquire loan is lengthy processing time for loan application, and requirement of collateral security in MUDRA scheme.

Objectives of the Study

The study has the major objective to examine the performance of MUDRA scheme at macro level in India which is segregated in following sub-objectives:

1. To evaluate the performance of MUDRA scheme bank wise and under various product offering under MUDRA scheme.
2. To evaluate category wise and state wise performance of MUDRA scheme.

Research Methodology

This study uses the secondary data collected from various journals, reports, magazines, and MUDRA portal. The methodology used in this study is descriptive and analytical in nature.

Result and Discussion

MUDRA – Product Offering

MUDRA works as a refinancing institution, and it does not provide loans directly to micro-business owners and entrepreneurs. Under the MUDRA scheme, the borrower does not require any collateral security and any guarantor. According to the need of the borrowers, the loan is provided in three categories under the MUDRA scheme. The amount of loan varies from 50,000 to 10 lakh depending on the requirement of the borrower. The intervention has been termed as Shishu, Kishore, and Tarun according to the stage, growth and funding requirement of business unit which is shown in Table 1.

Progress Made Under PMMY

PMMY scheme has made a tremendous growth from its inception to now. In its first year, it provided 3.49 crore loans worth rupees 1.37 lakh crore. The disbursement of loan under MUDRA scheme from its inception is shown in Table 2.

As depicted in the table, the MUDRA scheme has made a tremendous growth in providing loans to unfunded sections of the society by providing loans without collateral securities at affordable rates. The MUDRA scheme has made a 13.77% CAGR in loan sanctioning from its inception year to 2021-22. Moreover, the disbursement to loan sanction ratio is over 0.95 for all years which depicts that under the scheme, the government has a major focus on high-priority distribution of amounts to the entrepreneurs. Although, there is a high decrease in loan sanctions under the MUDRA scheme as indicated by a decline in growth rate. In its inception year, there was a growth rate of around 30% which decrease to 5% after the year 2021-22.

Category Wise Distribution of Loan

As explained earlier under the MUDRA scheme, the loan is provided in three categories namely Shishu, Kishore and Tarun. This division of category is done by the government on the basis of the scale and the financial requirement of the business. The disbursement of loans to these 3 categories in F.Y. 2020-21 & 2021-22 is shown in Table 3.

Table 3 depicts the disbursement and sanctions of loans under various categories of the MUDRA scheme for the year 2019 to 2021. As per the table, there is a disbursement ratio of around 0.993 under the Shishu scheme which illustrates the intensity of disbursement of loans after sanction under PMMY scheme.

Share Breakdown of Product Categories (Pie Diagram Analysis)

It is clear from the distribution that in 2020-21, 35% of loans were distributed to the Shishu category which shows a decrease in lending to this sector over the past year disbursement. The government also made a promise during the launch of this scheme to distribute more loans to the Shishu category of entrepreneurs to encourage entrepreneurship among the new generation of aspiring youth. Moreover, the result indicates that there is an increase in loan disbursement to the Shishu category in 2021-22 over the past year. Although, except for the year 2021-22, there is a decrement in loan disbursement under the Shishu category from the past few years after the inception of MUDRA scheme in India. This decrease in loan disbursement under the Shishu category is a matter of worry and there is a need to increase the same to increase the widespread reach of MUDRA scheme to the poorest sections of the society.

Bank Wise Performance

The loan under the MUDRA scheme is provided across all the branches all over India. Anyone who wants to get a loan under this scheme can visit any branch across India. MUDRA works as a refinancer institution instead of providing loans directly to the entrepreneur.

The public and private sector occupy a major share in the loan disbursement i.e., of around 65% under the MUDRA scheme (Private Sector Commercial Banks at 35%, Public Sector Commercial Banks at 30%). Moreover, Regional Rural Banks (RRBs) occupy a share of around 6% in the total loan disbursement under the MUDRA scheme which is very low. Therefore, there is a need to increase the share of RRBs, state co-operatives, micro finance institutions and small finance banks to reach out to the poor sections of the society. Similarly, Table 4 depicts the bank wise loan disbursement under the MUDRA scheme by various banking sectors in India. The results show that the disbursement to loan sanction ratio is around 0.95 for all banking sectors in India, which illustrates the intensity of the banking sector in providing loans after sanctions from the respective banks.

State Wise Distribution of Loan

For evaluating the performance of the MUDRA scheme at micro level in India, the study has analyzed the loans provided by various states under the MUDRA scheme. The disbursement to various states under the MUDRA scheme is shown in Table 5.

The table depicts that the growth rate in states like Arunachal Pradesh (-49.74%), Chandigarh (-36.83%), Chhattisgarh (-9.74%), Delhi (-36.07%), Goa (-5.70%), Himachal Pradesh (-6.30%), Karnataka (-4.74%), Meghalaya (-49.31%), Mizoram (-8.93%), Nagaland (-14.31%), is negative. Moreover, the growth rate in UTs like Andaman and Nicobar (-35.86%), Daman and Diu (-1.05%), Dadra & Nagar Haveli (-3.43%), and Lakshadweep (-28.20%) is also negative. Some States like Rajasthan, Uttar Pradesh, and West Bengal, which consist of a large population, still have a growth rate of 2.77%, 17.85%, and 19.00% respectively. Manipur (-6.76%) and Assam (-38.14%) are amongst the poorest states of India which still have a negative growth rate in loan disbursement under the MUDRA scheme in the recent years. Although, the government has the ambition to provide financial loans to unfunded sections of the society through this scheme, this is only possible by providing more loans to poor states and small category entrepreneurs by increasing the proportion of loans disbursement under the Shishu category of the scheme. Therefore, in order to demolish poverty through this scheme, there is a need to increase the loan disbursement especially to poor states and unfunded sections of the society.

Conclusion

The result of the study shows that PMMY is a great initiative taken by the government of India to provide funding to the unfunded sector of the Indian economy. This scheme plays an important function in achieving financial inclusion, and empowering women entrepreneur at micro level for establishing and increasing their businesses. This scheme also helps new entrepreneurs to get finance easily as they mostly face problems due to the absence of collateral securities. The introduction of the national plan PMMY with other types of financial inclusion initiatives yield a valuable and positive result. However, there is a huge decrease in loan disbursement under the MUDRA scheme in the recent past years. In order to demolish poverty through this scheme, there is a need to increase the loan disbursement, especially to poor states and unfunded sections of the society. There is a need to increase the participation of the RRBs and small financing institutions’ contribution for the loan disbursement under the MUDRA scheme as these financial institutions have a widespread reach to the poor sections of the society.

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Authors may be reached at: Shubhamgarg1230@gmail.com, priyankarunach0803@gmail.com, karampalhsb@gmail.com and eboard@icai.in