On Both Refinancing and Credit Growth, Modi's Mudra Scheme Has Had Little Impact

Mudra has proven to be a classic case of recategorisation, rebranding and inventive renaming.

In April 2015, Prime Minister Narendra Modi launched a wholly-owned subsidiary of SIDBI, Micro Units Development and Refinance Agency (Mudra) as a non-deposit-taking, non-banking financial institution and the Pradhan Mantri Mudra Yojana (PMMY) as a scheme for giving non-farm income-generating loans up to Rs 10 lakh by existing government and private sector banks, and other financial institutions.

The NDA-II government posits these as a new instrumentality that has generated crores in employment and self-employment, thus a major achievement. The fact, however, is that Mudra is only a refinancing institution and does not lend directly to individuals. PMMY in reality is merely the repackaging and rebranding of continuing lending activities of existing financial institutions. Loans given out in normal course of business are now collated, counted and reported as ‘Mudra’ loans. 

The Centre has struggled to boost economic activity and employment generation over the last four years. Using what was essentially PMMY loan disbursement data, but making sure to only use the word ‘Mudra’, the BJP has tried to counter criticism on dismal pace of job creation and argued that though jobs have not been created in the formal sector, Mudra has created millions of employment and self-employment opportunities. It’s like counting money in somebody else’s pocket.

Amit Shah said “more than 7.45 crore small entrepreneurs received loans worth more than Rs 3.17 lakh crores” creating more than 7 crore self-employment opportunities.

Merely scratching the surface counters these claims. The government gave no budget for directly financing PMMY loans to businesses. It also gave no budget to Mudra for refinancing loans to other financial institutions. Mudra has a corpus of Rs 10,000 crore allocated by RBI from priority sector lending shortfall.

Till March 31, 2017, Mudra drew Rs 8,125 crore from that corpus, sanctioned Rs.7492 crore (2015-17) and had an outstanding refinance portfolio of Rs 6,113.87 crore.

However, total loans counted as Mudra stand at Rs 3.17 lakh crore. This erroneously gives an impression that Rs 3.17 lakh crore in new financing has been made available by the government. In fact, refinancing by Mudra has declined in 2016-17 (data for the year 2017-18) is not available as yet.

Let’s understand this.

Loans under PMMY can be availed from any public/ private/ regional rural banks, NBFC, MFIs etc. SIDBI mandates that under PMMY “all banks are required to finance micro-entrepreneurs up to Rs.10 lakh, irrespective of whether they avail of refinance support from Mudra or not”.

Mudra was authorised to monitor all PMMY lending activity and aggregate data on its web-portal.

All these loans under Rs 10 lakh were branded as PMMY. Thus all such lending activity in India get counted as Mudra loans. This lending has been an on-going financial activity since these financial institutions were created and has nothing to do with any government whatsoever.

These loans existed before Modi rechristened them PMMY and counted by Mudra, and will continue. Apart from collecting and reporting data, Mudra has very little to do with PMMY.

Despite all the hype created, loans counted as PMMY by Modi government disbursed by commercial banks does not show any marked increase after the implementation of Mudra scheme. RBI data (below 10 lakh, excluding personal and agricultural loans)  shows that credit growth was 20% and 7.7% respectively in 2015-16 and 2016-17 (post- Mudra), against growth of 17.3% , 9.8 % , -13.2% and 12.8% percent respectively in 2011-12, 2012-13, 2013-14 and 2014-15 (pre-Mudra).

Despite PMMY rules, there is no discernible change in lending patterns. Banks have basically converted regular lending schemes into Mudra loans and the profile of borrowers remains largely the same in pre and post Mudra period.

The government has presented economic data in inventive ways, controversies around GDP estimation and employment data are testimony of this. PMMY/Mudra is an example where the name Mudra is used to denote all loans from across a range of government and private financial institutions even when not financed and provided for by the government. It’s a classic case of recategorisation, rebranding and inventive renaming. It is a counting error.

Abhishek Mishra is currently the national secretary and spokesperson of the Samajwadi Party. Before joining politics, he was an assistant professor at IIM-Ahmedabad.