MUDRA Scheme: Is PM Modi's mission turning into a mess?

Launched with much fanfare four years ago, Modi Government's flagship silver bullet MUDRA scheme appears to have missed its target. Meant to 'fund the unfunded', the collateral free loan scheme is now a bad loan mess with 40% allocated funds remaining idle since the last financial year. An India Today TV investigation of MUDRA annual reports has found that even the intended job creation and income generation has been below par so far.

The Modi government facing the heat employees of public-sector banks staged a massive protest at Delhi's Jantar Mantar in December last year. The bank unions are angry over what they allege are poor wage increases. They are also worried that schemes like MUDRA are bleeding their banks. And when India Today TV dug up deeper we found some of their concerns were genuine.

In the recently concluded winter session of the Parliament, replying to a query raised by a member, Government divulged that out of the total 15.26 crore MUDRA loans sanctioned so far, the Shishu (loans upto Rs 50 thousand) component stands at ajist over 90% ! Bank employees allege that they were under government pressure to disburse these loans. Pankaj Kapoor, an officer with Bank of India told India Today TV said, ' We were under a lot of pressure from the ministry to show numbers, we were asked to provide a daily report of the number of MUDRA loans disbursed. In desperation our officers had to go out and request customers to sign up for the loan.' 'There was no loan proposal nor any repayment plan, we just had to follow orders without going into the procedures,' he added.

The scheme is yet to spur job creation. The Government itself has admitted that there is no authentic survey to second its claims on this front. The MUDRA balance sheets from the last two years show its lending less than the priority funds it received from banks. RBI data on the sectoral deployment of bank credits shows that the growth in credit flow to MSMEs remains below par when compared with that of both the non-food sector and the priority sector. When compared with the situation in March 2015, a month ahead of MUDRA's launch, with that of March 2018, the data shows that while credit growth to the non-food and priority sectors were 28% and 27%, respectively, that of MSMEs (manufacturing and services) was only 24%.

Similarly, if compared with the situation in November 2014 with November 2018 - the latest RBI data available - growth of credit to the non-food and priority sectors were 41% and 36%, respectively. As against this, growth of credit to MSMEs (manufacturing and services) was 33%. If the growth of credit to the manufacturing MSMEs alone are taken, it is actually in the negative (-2%) between March 2014 and March 2018 and just 1% between November.

Bank unions allege a policy flaw. Ashwini Rana of the National Organisation of Bank Workers said, 'Unsecured loans once disbursed become a headache for bankers. Borrowers think that it is some sort of a government gift to them and they don't have to repay. Government fixes targets which should not be the case. There is policy flaw with MUDRA. That's why people have misused it and when they default, bankers are caught and penalised.'

Worse, estimates suggest show income generated from Shishu and Kishore ( loans between Rs 50 thousand to Rs 5 Lakhs) loans is nowhere near the monthly minimum wage of an unskilled farm labourer. India Today TV analysed all the three loan categories. For Shishu loans the average loan size in 2017-18 was Rs 22516. At 20% of this loan amount, the assumed annual return would have been Rs 4617, which comes to just Rs 375 per month. Similarly monthly return from Kishore was Rs 3487 only. Both these returns are far below that even the monthly minimum wage (Rs 10650) for unskilled agriculture labour fixed by the Government. As for Tarun loans ( Between Rs 5 Lakh to Rs 10 lakh), the estimate is Rs 12687 which is just a little above the mark.

The Union Government has recently admitted in the Lok Sabha that bad loans under MUDRA have almost doubled since the last fiscal. In financial year 2015-16, MUDRA generated bad loans worth Rs 596 Cr while in 2016-17 it rose to Rs 3,790 Cr but in 2017-18, it's bad loan volume climbed to a dangerous level of Rs 7,277 crore.

And here's another irony of MUDRA numbers. Before the launch, bank loans to small and micro business stood at Rs 3,700 crore in 2015. After running the scheme for three years, loans under MUDRA have in fact gone down to Rs 3,600 crore. Economists say MUDRA is more of an accounting exercise than a fresh infusion to create jobs. Ved Jain, an Economist told India Today TV ,'It would have been more effective had the Government made it a scheme with budgetary backing. Right now it's mostly dependent on public sector banks for funds which is not a good thing to do. Banks should not be used to fund populist schemes. They are already witnessing high NPAs and such schemes are more likely to end up as farms loans. I am sure some government would come up and say we will waive MUDRA loans.'

Yet, the government defends the project.

Niti Aayog's Vice Chairman Rajiv Kumar disagreed that MUDRA has failed to meet expectations. He told India Today TV, 'MUDRA scheme has been specially designed for borrowers, small trading or business startups. These small businesses drive job creation at the macro level. Wrong to say that there is no budgetary provision since MUDRA is backed by SIDBI which has a definite budget.'

But MUDRA's latest annual report shows more than 40% of its allocated funds are lying un-utilised. While the total lending stands at Rs 10,555 crore as per official data, a huge sum of Rs 6719 crore remains unused. While recoveries from big defaulters like Nirav Modi and Mehul Choksi is still a challenge. The volume of bad loans from MUDRA borrowers could be a new headache for the Banks and micro finance groups.