Microfinance Story of India
[pib] Pradhan Mantri Mudra Yojana (PMMY)
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Pradhan Mantri Mudra Yojana (PMMY)
Why in the News?
- The Centre has doubled the limit of Mudra loan amount under the PMMY to Rs 20 lakh from Rs 10 lakh under a new ‘Tarun Plus’ category to promote entrepreneurship in the country.
- This higher loan limit is available to entrepreneurs who have previously taken and successfully repaid loans under the existing ‘Tarun’ category.
About Pradhan Mantri Mudra Yojana (PMMY):
| Details | |
| Launch | Launched on April 8, 2015, by Prime Minister. |
| Objective |
|
| Recent Update | Loan limit increased from Rs 10 lakh to Rs 20 lakh under the new Tarun Plus category, announced in July 2024. |
| Loan Categories | • Shishu: Loans up to Rs 50,000 • Kishore: Loans between Rs 50,000 and Rs 5 lakh • Tarun: Loans between Rs 5 lakh and Rs 10 lakh • Tarun Plus: Loans between Rs 10 lakh and Rs 20 lakh |
| Loan Performance (2023-24) | • 66.8 million Loans sanctioned totaling Rs 5.4 trillion. • Over 487.8 million loans worth Rs 29.79 trillion sanctioned since launch. |
| NPA Statistics | • NPA of public sector banks under Mudra loans decreased to 3.4% in FY24, down from 4.77% in 2020-21. • Gross NPA for scheduled commercial banks at 2.8% as of March 2024. |
| Target Beneficiaries | Aims to empower women, minorities, and marginalized communities by facilitating easy access to credit. |
| Technological Intervention |
|
PYQ:[2016] Pradhan Mantri MUDRA Yojana is aimed at: (a) Bringing the small entrepreneurs into formal financial system. (b) Providing loans to poor farmers for cultivating particular crops. (c) Providing pension to old and destitute persons. (d) Funding the voluntary organizations involved in the promotion of skill development and employment generation. |
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Microfinance Story of India
MUDRA 2.0 Loans
Note4Students
From UPSC perspective, the following things are important :
Prelims level: MUDRA 2.0
Why in the News?
The Union Budget 2024 has sought to increase the loan limit under the MUDRA scheme signifying the potential launch of MUDRA 2.0.
What is MUDRA 1.0?
| Details | |
| Launch |
|
| Purpose | To extend affordable credit to micro and small enterprises, bringing them into the formal financial system and funding the unfunded. |
| Loan Providers | Public Sector Banks (PSU Banks), Regional Rural Banks, Cooperative Banks, Private Sector Banks, Foreign Banks, Micro Finance Institutions (MFI), and Non-Banking Finance Companies (NBFC). |
| Eligibility | Indian citizens with a business plan for non-farm sector income-generating activities in manufacturing, processing, trading, or services, requiring less than ₹10 lakh. |
| Types of Loans | • Shishu: Loans up to ₹50,000. • Kishor: Loans above ₹50,000 and up to ₹5 lakh. • Tarun: Loans above ₹5 lakh and up to ₹10 lakh. |
| Subsidy |
|
Achievements of MUDRA 1.0
- Financial Inclusion: Disbursed over Rs 27.75 lakh crore to 47 crore small entrepreneurs, improving access to formal credit.
- Support for Marginalized Groups: 69% of loans went to women, and 51% to SC/ST and OBC entrepreneurs, enhancing social equity and gender equality.
- Job Creation: Helped create jobs and encouraged self-employment, especially in rural and semi-urban areas.
- Reduction in NPAs: Reduced non-performing assets (NPAs) from 3.61% in FY21 to 2.1% in FY24, showing better loan management.
Challenges Faced by MUDRA 1.0
- Unequal Loan Distribution: In 2021-22, the top 10 districts received Rs 26,000 crore, about the same as the bottom 318 districts, showing uneven credit distribution.
- High NPAs in Early Categories: The Shishu (loans up to Rs 50,000) and Kishore (loans between Rs 50,001 and Rs 5 lakh) categories had NPAs above 4% from FY20 to FY22 due to a lack of business skills among early-stage entrepreneurs.
- Low Financial Literacy: Only 27% of the population is financially literate, leading to poor loan management and higher defaults.
- Monitoring and Credit Appraisal Issues: Increased lending led to challenges in maintaining quality credit appraisal processes and monitoring, resulting in some misuse of funds.
What is MUDRA 2.0?
- MUDRA 2.0 is the proposed next phase of the scheme, aiming to expand and enhance support for micro-entrepreneurs, especially in underserved regions.
- Features of MUDRA 2.0:
- Expanded Outreach: Establish new centers in rural and semi-urban areas to provide financial literacy, mentorship, and business support.
- Enhanced Financial Literacy: Launch nationwide programs covering budgeting, savings, credit management, and digital literacy to help entrepreneurs manage their finances better.
- Improved Credit Support: Introduce the Enhanced Credit Guarantee Scheme (ECGS) to reduce risks for banks and encourage more lending to small enterprises.
- Stronger Monitoring: Implement a robust monitoring framework using data analytics to track loan disbursements, usage, and repayments in real-time, ensuring transparency and reducing misuse.
PYQ:[2016] Pradhan Mantri MUDRA Yojana is aimed at: (a) Bringing the small entrepreneurs into formal financial system. (b) Providing loans to poor farmers for cultivating particular crops. (c) Providing pension to old and destitute persons. (d) Funding the voluntary organizations involved in the promotion of skill development and employment generation. |
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Microfinance Story of India
What is MUDRA Scheme?
Note4Students
From UPSC perspective, the following things are important :
Prelims level: MUDRA Scheme
Mains level: Read the attached story
PM hit out at people ridiculing the Pradhan Mantri Mudra Yojana (PMMY) and said those who gave loans to big businessmen “over phone” never understood the power of microfinance.
MUDRA Scheme
- MUDRA (Micro Units Development and Refinance Agency) Scheme is a financial initiative launched by the Government of India in April 2015 to provide financial support to micro-enterprises in India.
- The scheme is designed to cater to the financial needs of the non-corporate, non-farm sector enterprises in the country.
- The objective of the scheme is to promote entrepreneurship, employment generation, and to provide access to finance to small and micro-businesses in India.
Range of loans
- The MUDRA scheme provides loans ranging from Rs. 50,000 to Rs. 10 lakhs to small and micro-businesses.
- These loans are provided through various financial institutions such as banks, microfinance institutions, and non-banking financial companies (NBFCs).
- The scheme also offers refinance support to these institutions.
| Category | Loan Amount |
| Shishu | Up to Rs. 50,000 |
| Kishore | Rs. 50,001 to Rs. 5 lakhs |
| Tarun | Rs. 5 lakhs to Rs. 10 lakhs |
Key features of the MUDRA scheme
- Refinance support: The scheme offers refinance support to various financial institutions, such as banks, microfinance institutions, and non-banking financial companies (NBFCs), to provide loans to small and micro-businesses.
- Employment generation: The scheme aims to promote entrepreneurship and employment generation in the country.
- Digitalization of financial transactions: The scheme has helped in promoting the digitalization of financial transactions.
- Focus on underprivileged and marginalized sections: The scheme aims to provide financial assistance to underprivileged and marginalized sections of the society, especially those belonging to the non-corporate, non-farm sector enterprises in the country.
- Simplified loan processing: The loan processing under the scheme is simplified and requires minimal documentation.
- No collateral requirement: The loans provided under the scheme do not require any collateral or security.
- Competitive Interest rate: The interest rate for the loans provided under the scheme is competitive and affordable.
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Microfinance Story of India
Issues with RBI’s microfinance proposals
Note4Students
From UPSC perspective, the following things are important :
Mains level: Paper 3- Issues with removing the interest rate ceiling for NBFC-MFIs
Context
In June 2021, the Reserve Bank of India (RBI) published a “Consultative Document on Regulation of Microfinance”. The likely impact of the recommendations is unfavourable to the poor.
Background of microfinance in India
- Microfinance lending has been in place since the 1990s.
- In the 1990s, microcredit was given by scheduled commercial banks either directly or via non-governmental organisations to women’s self-help groups.
- But given the lack of regulation and scope for high returns, several for-profit financial agencies such as NBFCs and MFIs emerged.
- The microfinance crisis of Andhra Pradesh led the RBI to review the matter, and based on the recommendations of the Malegam Committee, a new regulatory framework for NBFC-MFIs was introduced in December 2011.
- A few years later, the RBI permitted a new type of private lender, Small Finance Banks (SFBs), with the objective of taking banking activities to the “unserved and underserved” sections of the population.
- Today, as the RBI’s consultative document notes, 31% of microfinance is provided by NBFC-MFIs, and another 19% by SFBs and 9% by NBFCs.
- These private financial institutions have grown exponentially over the last few years.
What are the recommendations in the document?
- The consultative document recommends that the current ceiling on rate of interest charged by non-banking finance company-microfinance institutions (NBFC-MFIs) or regulated private microfinance companies needs to be done away with.
- The paper argues that the interest rate ceiling is biased against one lender (NBFC-MFIs) among the many: commercial banks, small finance banks, and NBFCs.
- It proposes that the rate of interest be determined by the governing board of each agency, and assumes that “competitive forces” will bring down interest rates.
Comparison of rate of interest
- According to current guidelines, the ‘maximum rate of the interest rate charged by an NBFC-MFI shall be the lower of the following: the cost of funds plus a margin of 10% for larger MFIs (a loan portfolio of over ₹100 crores) and 12% for others; or the average base rate of the five largest commercial banks multiplied by 2.75’.
- A quick look at the website of some Small Finance Banks (SFBs) and NBFC-MFIs showed that the “official” rate of interest on microfinance was between 22% and 26% — roughly three times the base rate.
- How does this compare with credit from public sector banks and cooperatives?
- Crop loans from Primary Agricultural Credit Societies (PACS) in Tamil Nadu had a nil or zero interest charge if repaid in eight months.
- Kisan credit card loans from banks were charged 4% per annum (9% with an interest subvention of 5%) if paid in 12 months (or a penalty rate of 11%).
- Other types of loans from scheduled commercial banks carried an interest rate of 9%-12% a year.
- As even the RBI now recognises, the rate of interest charged by private agencies on microfinance is the maximum permissible, a rate of interest that is a far cry from any notion of cheap credit.
- The actual cost of microfinance loans is even higher for several reasons.
- An “official” flat rate of interest used to calculate equal monthly instalments actually implies a rising effective rate of interest over time.
- In addition, a processing fee of 1% is added and the insurance premium is deducted from the principal.
Violations of RBI guidelines
- In line with RBI regulations, all borrowers had a repayment card with the monthly repayment schedules.
- This does not mean that borrowers understood the charges.
- Further, contrary to the RBI guideline of “no recovery at the borrower’s residence”, the collection was at the doorstep.
Conclusion
The proposals in the RBI’s consultative document will lead to further privatisation of rural credit, reducing the share of direct and cheap credit from banks and leaving poor borrowers at the mercy of private financial agencies. This is beyond comprehension at a time of widespread post-pandemic distress among the working poor.
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Microfinance Story of India
Gauging household income key for microfinance clients
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Definition of microfinance
Mains level: Paper 3- Making household income critical variable for loan assessment
Context
The Reserve Bank of India’s (RBI) recently released a Consultative Document on Regulation of Microfinance in June 2021.
Consultative document makes household income a critical variable
- Following the Malegam Committee Report, which is a decade old now, the current document looks to reassess and realign the priorities of the sector.
- Some of the key regulatory changes proposed in the document take household income as a critical variable for loan assessment
- Definition of microfinance: The definition of microfinance itself is proposed to mean collateral-free loans to households with annual household incomes of up to ₹1,25,000 and ₹2,00,000 for rural and urban areas respectively.
- Household income assessment: The document requires all Regulated Entities to have a board-approved policy for household income assessment.
- Cap on repayment: It caps loan repayment (principal and interest) for all outstanding loans of the household at 50% of household income.
- Therefore, measuring household income accurately becomes critical for the effective implementation of these norms.
Challenges in measuring the income of Low-Income-Household (LIH)
- Seasonal and volatile: Low-Income Households (LIHs), who typically form the customer base for Microfinance Institutions (MFIs), often also have seasonal and volatile income flows.
- Measuring expenditure doesn’t reflect their income: Since income for LIHs is seasonal and volatile, there have been attempts to understand their inflows by measuring their expenditure.
- But, given the rotational debts they avail to fund a consumption expenditure here and a loan repayment obligation there, expenditure also does not truly reflect the household’s income.
- Not separate personal expenditure: Moreover, for most LIHs, their expenditure on income-related activity is not separate from their personal expenses.
- Therefore, it is difficult to separate the household’s personal expenses from that of their occupational pursuits.
- Given these complexities, we need to understand and accept that for the bulk of LIHs, household finance is not just personal family finance, but their business finance as well.
3 ways to measure household income for microfinance client
- Structured survey approach: A structured survey-based approach could be used by Financial Service Providers (FSPs) to assess a household’s expenses, debt position and income from various sources of occupation and seasonality of income.
- Template-based approach: A template-based approach could be used wherein FSPs could create various templates for different categories of households (as per location, occupation type, family characteristics, etc.).
- These templates could then be used to gauge the household income of a client matching a particular template.
- Centralised database: FSPs could also form a consortium to collect and maintain household income data through a centralised database.
- This would allow for uniformity in data collection across all FSPs and, over time, can be used to validate the credibility of any new client’s reported income.
- Such a database would also enable FSPs to track the changes in household income over time.
Way forward
- Use technology: Finding cost-effective yet accurate ways of capturing this information becomes crucial.
- Creating new technology to document and analyze cash flows of LIHs would not only facilitate credit underwriting but also innovation in the standard microcredit contracts through customized repayment schedules and risk-based pricing, depending on a household’s cash flows.
Conclusion
Eventually, an accurate assessment of household-level incomes would avoid instances of over-indebtedness and ensure the long-term stability of the ecosystem.
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Microfinance Story of India
Telangana’s Dalit Bandhu Scheme
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Dalitha Bandhu Scheme
Mains level: Not Much
Telangana CM has recently been informed to spend Rs 80,000 crore to Rs 1 lakh crore for Dalit Bandhu Scheme, touted as the country’s biggest direct benefit transfer scheme, to empower Dalits across the state.
Dalit Bandhu Scheme
- Dalit Bandhu is the latest flagship program of the Telangana government.
- It is envisioned as a welfare scheme for empowering Dalit families and enable entrepreneurship among them through a direct benefit transfer of Rs 10 lakh per family.
- This is, once implemented on the ground, going to be the biggest cash transfer scheme in the country.
- Apart from monetary assistance, the government plans to create a corpus called the Dalit Security Fund permanently to support the beneficiary in the event of any adversities.
- This fund will be managed by the district collector concerned, along with a committee of beneficiaries.
- The beneficiary would be issued an identity card with an electronic chip, which will help the government monitor the progress of the scheme.
Where is the scheme being implemented?
- The CM decided to implement it on a pilot basis in the Huzurabad Assembly constituency.
- Based on the experiences of implementation in Huzurabad, the scheme will be rolled out across the state in a phased manner.
- Officials were asked to visit Dalit colonies and interact with Dalit families to find out their views and opinions before preparing guidelines for the scheme.
- The pilot project will focus on monitoring the implementation of the scheme, evaluating the results, and also creating a safety fund for the beneficiaries with the government’s participation.
How is Dalitha Bandhu being implemented?
- The CM has ensured that the Dalit Bandhu is free.
- The governments in the past came out with some schemes and asked for bank guarantees.
- This is not a loan. There is no need to repay it. There is no chance of any involvement of middlemen.
- To promote Dalit entrepreneurship, the government has decided to start a system of reservations for Dalits in sectors where the government issues licenses.
- The government will provide reservations for Dalits in issuing licenses for wine shops, medical shops, fertilizer shops, rice mills, etc.
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Microfinance Story of India
Microfinance institutions
Note4Students
From UPSC perspective, the following things are important :
Prelims level: MFIs
Mains level: Paper 3- Freeing up microfinance institutions
The microfinance institutions (MFI) faced several restrictions by RBI which were not applicable to banks, NBFC and small finance banks. This denied the MFIs level playing field. A recent Consultative document by the RBI frees MFIs from such restrictions. The article explains this in detail.
Background of regulation of MFI’s by RBI
- RBI first allowed informal self-help groups to open savings accounts in banks and bank lending to these groups in 1991-92.
- In 2000, RBI permitted all types of institutions to offer microcredit and bank loans extended to these institutions for on-lending were treated as part of the priority sector lending.
- Beyond these, RBI was unwilling to bring in any regulations on the plea that as long as these are not deposit-taking institutions there is no need to regulate them.
- That was the stand of various RBI-appointed committees too, including the Vyas Committee of 2004.
- Based on the Malegam Committee recommendations, RBI came out with detailed guidelines for microfinance institutions (not the microfinance sector) in 2011.
- These guidelines introduced a new category of NBFCs, viz NBFC-MFIs (microfinance institutions).
- It also set norms for income criteria for clients of MFIs, repayment period, borrower loan limits, interest rate norms and caps, limits on a number of lenders to a borrower and a host of other norms and criteria.
How these norms created the issue of a level playing field?
- After 2015-16, the entry of small finance banks, eight of which were MFIs, into the microfinance space started to create issues.
- MFIs discovered to their dismay that while they had to adhere to a set of regulations, it was a free-for-all for non-MFIs (banks, SFBs and NBFCs).
- The main issue was that non-MFIs need not adhere to the norm of number of lenders (two in the case of NBFC-MFIs) and per-borrower loan limits.
- It prompted non-MFIs to target borrowers identified and nurtured by MFIs with higher loan amounts, leading to high levels of borrower indebtedness.
- In addition, the interest rate cap (2.75 times the base rate declared quarterly by RBI) was squeezing the margins of small and medium MFIs, as none of them get loans from the biggest banks.
Way forward
- The recent Consultative Document by RBI frees MFIs from the restriction imposed by the 2011 regulations and gives them a level-playing field.
- Another important feature for MFIs is that by doing away with the 50% income generation loans criteria and the repayment period norms.
- RBI is facilitating credit flow into lifecycle needs like housing, water sanitation, education, health, renewable energy, etc, which are now as important as income generation.
- On the interest rate front, initially, some upward correction could be there by medium and small MFIs based on their borrowing rates.
- The document enhances the role for the regulator as the adoption of Board-approved policies to determine the norms of household indebtedness and to fix a transparent rate of interest by each institution and their implementation need a rigorous supervisory oversight
Conclusion
Providing a level playing field to the MFI is critical to their development, the document by RBI rightly does that. It will help in providing credit to those who remain outside the formal banking network.
Source:
https://www.financialexpress.com/opinion/unfettering-microfinance-recent-rbi-consultative-document-frees-mfis-from-shackles-imposed-by-2011-regulations/2277925/
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Microfinance Story of India
[pib] SFURTI Scheme
Note4Students
From UPSC perspective, the following things are important :
Prelims level: SFURTI Scheme
Mains level: Reviving MSME Sector
Union Minister for MSME has inaugurated 50 artisan-based SFURTI clusters, spread over 18 States.
SFURTI is an off-track scheme compared to other HRD schemes with Hindi acronyms. Similar is the SPARSH scheme for philately.
SFURTI Scheme
- Scheme of Fund for Regeneration of Traditional Industries (SFURTI) is an initiative by the Ministry of MSME to promote Cluster development.
- Khadi and Village Industries Commission (KVIC) is the Nodal Agency for the promotion of Cluster development for Khadi.
- Under the Scheme, the MSME Ministry supports various interventions including the setting up of infrastructure through Common Facility Centers (CFCs), procurement of new machinery, design intervention, improved packaging and marketing etc.
Types of clusters
- SFURTI clusters are of two types i.e., Regular Cluster (500 artisans) with Government assistance of up to Rs.2.5 crore and Major Cluster (more than 500 artisans) with Government assistance up to Rs.5 crore.
- The scheme focuses on strengthening the cluster governance systems with the active participation of the stakeholders so that they are able to gauge the emerging challenges and opportunities and respond to them.
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Microfinance Story of India
Open Credit Enablement Network (OCEN)
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Open Credit Enablement Network (OCEN)
Mains level: Credit facilities for MSMEs
A new credit protocol infrastructure called the OCEN protocol is set to be launched very soon.
Practice question for mains:
Q. What is Open Credit Enablement Network (OCEN)? How it is expected to be a gamechanger in the micro-credit facilitation services in India?
Open Credit Enablement Network (OCEN)
- OCEN is a credit protocol infrastructure, which will mediate the interactions between loan service providers, usually fintech and mainstream lenders, including all large banks and NBFCs.
- It is developed by a think tank, Indian Software Products Industry Round Table (iSPIRT).
- With this, a credit will become more accessible for a large number of entrepreneurs and small businesses in the country.
- Private equity and venture capital players, angel investors, high net worth individuals and others also could be part of this exercise as investors.
How will it work?
- iSpirit is partnering with key leaders such as SBI, HDFC Bank Ltd., ICICI Bank Ltd., IDFC First Bank Ltd., Axis Bank Ltd. etc. for this new credit rail.
- Account Aggregators which will be using these APIs to embed credit offerings in their applications, and will be called ‘Loan Service Providers’, which will play a crucial role in democratizing access to credit, and lowering interest rates for customers.
Why need OCEN?
- The cost of lending being too high in India, small value loans becomes very unfeasible.
- OCEN which seeks to connect lenders to marketplaces and thereby to borrowers is a technology system.
- If implemented, the technology can democratize lending to micro-enterprises and street vendors in a big way.
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Microfinance Story of India
[pib] Emergency Credit Line Guarantee Scheme (ECLGS)
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Emergency Credit Line Guarantee Scheme (ECLGS)
Mains level: Reviving MSME Sector of India
The Union Cabinet has given its approval for the Emergency Credit Line Guarantee Scheme (ECLGS) for MSMEs and MUDRA borrowers.
Practice question for Mains :
Q. Discuss how the nationwide lockdown to control the coronavirus outbreak has led to the resurfacing of inherent bottlenecks in India’s MSME Sector.
About ECLGS
- Under the Scheme, 100% guarantee coverage to be provided by National Credit Guarantee Trustee Company Limited (NCGTC) for additional funding of up to Rs. 3 lakh crore to eligible MSMEs and interested MUDRA borrowers.
- The credit will be provided in the form of a Guaranteed Emergency Credit Line (GECL) facility.
- The Scheme would be applicable to all loans sanctioned under GECL Facility during the period from the date of announcement of the Scheme to 31.10.2020.
Aims and objectives
- The Scheme aims at mitigating the economic distress faced by MSMEs by providing them additional funding in the form of a fully guaranteed emergency credit line.
- The main objective is to provide an incentive to Member Lending Institutions (MLIs), i.e., Banks, Financial Institutions (FIs) and NBFCs to increase access to, and enable the availability of additional funding facility to MSME borrowers.
- It aims to provide a 100 per cent guarantee for any losses suffered by them due to non-repayment of the GECL funding by borrowers.
Salient features
- The entire funding provided under GECL shall be provided with a 100% credit guarantee by NCGTC to MLIs under ECLGS.
- Tenor of the loan under Scheme shall be four years with a moratorium period of one year on the principal amount.
- No Guarantee Fee shall be charged by NCGTC from the Member Lending Institutions (MLIs) under the Scheme.
- Interest rates under the Scheme shall be capped at 9.25% for banks and FIs, and at 14% for NBFCs.
Benefits of the scheme
- The scheme aims to mitigate the distress caused by COVID-19 and the consequent lockdown, which has severely impacted manufacturing and other activities in the MSME sector.
- The scheme is expected to provide credit to the sector at a low cost, thereby enabling MSMEs to meet their operational liabilities and restart their businesses.
- By supporting MSMEs to continue functioning during the current unprecedented situation, the Scheme is also expected to have a positive impact on the economy and support its revival.
Must read
[Burning Issues] Fiscal Push for MSME Sector of India (Part I)
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Microfinance Story of India
[pib] Saras Collection on Government e-Marketplace
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Saras Collection, GeM
Mains level: Not Much
The Union Ministry for Rural Development and Panchayati Raj and Agriculture and Farmers’ Welfare has launched “The Saras Collection” on the Government e-Marketplace (GeM) portal.
Possible prelim question:
‘The Saras Collection’ recently seen in news is a:
a) Subsidy on beekeeping and apiculture projects
b) Indigenous light transport aircraft
c) Database on wetland birds
d) Collection of products made by SHGs
The Saras Collection
- It is a unique initiative by the GeM, Deendayal Antyodaya Yojana-National Rural Livelihoods Mission (DAY-NRLM) and Ministry of Rural Development.
- The collection showcases daily utility products made by rural Self-Help Groups (SHGs) and aims to provide SHGs in rural areas with market access to Central and State Government buyers.
- The on-boarding of the SHGs has been initially piloted in the states of Bihar, Chhattisgarh, Jharkhand, Karnataka, Kerala, Himachal Pradesh, Maharashtra, Odisha, Rajasthan, Uttar Pradesh and West Bengal.
- SHGs from all the states and Union Territories (UTs) will be covered rapidly in the upcoming phases.
It’s functioning
- For Functionaries: They will be provided dashboards at the national, state, district and block level for real-time information about the number of products uploaded, their value and volume of orders received and fulfilled.
- Government buyers: They will be sensitized through system-generated messages/ alerts in the Marketplace about the availability of SHG products on the portal.
Benefits offered
- The Saras Collection will provide SHGs with direct access to Government buyers which will do away with intermediaries in the supply chain.
- Thus it would ensure better prices for SHGs and spurring employment opportunities at the local level.
Back2Basics: Government e-Marketplace
- The GeM is a one-stop National Public Procurement Portal to facilitate online procurement of common use Goods & Services required by various Government Departments / Organizations / PSUs.
- It was launched in 2016 to bring transparency and efficiency in the government buying process.
- GEM aims to enhance transparency, efficiency and speed in public procurement.
- It is a completely paperless, cashless and system driven e-marketplace that enables procurement of common use goods and services with minimal human interface.
- It provides the tools of e-bidding, reverse e-auction and demand aggregation to facilitate the government users to achieve the best value for their money.
- The purchases through GeM by Government users have been authorized and made mandatory by the Ministry of Finance by adding a new Rule No. 149 in the General Financial Rules, 2017.
- It has been developed by Directorate General of Supplies and Disposals (Ministry of Commerce and Industry) with technical support of National e-governance Division (MEITy).
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Pradhan Mantri Mudra Yojana: Funding the unfunded
Pradhan Mantri Mudra Yojana (PMMY) is a flagship scheme of Government of India to enable a small enterprise come into the formal financial system and get affordable credit to run his/ her business.
- Who? Any Indian Citizen who has a business plan for a non-farm sector income generating activity
- Credit need? Less than Rs 10 lakh
- Possible Creditors? Banks, MFI, or NBFC
Types of Loans provided
Under the aegis of Pradhan Mantri MUDRA Yojana, MUDRA has already created the following products / schemes.
- Shishu : covering loans upto 50,000/-
- Kishor : covering loans above 50,000/- and upto 5 lakh
- Tarun : covering loans above 5 lakh and upto 10 lakh
Note that there is no subsidy for the loan given under PMMY. However, if the loan proposal is linked some Government scheme, wherein the Government is providing capital subsidy, it will be eligible under PMMY also.
What is MUDRA Bank and what is its role in the MUDRA Yojna?
- MUDRA Bank = Micro Units Development and Refinance Agency Bank
- The Rs 20,000 crore MUDRA Bank aims to provide refinancing to small and medium enterprises, particularly those from SC & ST
- The idea is to refinance micro-finance institutions through Pradhan Mantri Mudra Yojana
- This bank would be responsible for regulating and refinancing all MFIs which are in the business of lending to MSME
Are there any concerns regarding the structure or establishment of MUDRA bank?
- The bank will be financially challenged since inception, if it is funded through non-budgetary support
- The funds for the bank would be sourced from shortfall in the achievements of the priority sector lending (PSL) targets
- Currently, the shortfall in the PSL targets of the domestic scheduled commercial banks are deposited in Rural Infrastructure Development Fund (RIDF) and for foreign banks in Small Enterprises Development Fund
- The fact of the matter is that banks have been surpassing the targets in all years, since 2002, except for the last three years
- The shortfall lies only in agricultural loans, but it would be unfair to divert the target for agriculture from RIDF to micro units
What are some of the positive points which go in favour of such a scheme?
- Informal sector accounts for 90% of our non-agricultural workforce, 50% of the GDP & 40% of the non-farm GDP
- Analysts point that the Indian GDP can be raised by almost 15% if the informal sector data is incorporated in the GDP series
- The MUDRA bank aims to boost loans and cut borrowing costs for the cash-starved domestic small businesses
But has a direct intervention from government (to facilitate loans) worked in past?
What are some of the prominent concerns in this area?
- There is always a case for direct government intervention to solve any one of our many chronic problems, to justify the need for MUDRA bank
- The govt. is trying to ensure equity through determined government action that previously drove the govt. to nationalise banks and bring priority sector lending
- However, such ‘directed credit’ has not worked successfully in the past
- The govt. control over banks had led to large-scale corruption and repeated recapitalisation through taxpayers’ money
- MUDRA bank has been over-burdened with many conflicting objectives and too-many roles, viz. a lender, consultant, regulator, think tank and an agent of social change