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	Pradhan Mantri Mudra Yojana (PMMY) Launched in 2015.
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	No direct subsidy; Loans linked to Government schemes providing capital subsidies are eligible under PMMY.

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.

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.

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.

[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.

(d) Funding the voluntary organizations involved in the promotion of skill development and employment generation.