03/12/2019 - Indian Economy

KEY POINTS

·       Under the scheme, MUDRA (Micro Units Development and Refinance Agency) was set up to provide refinance support to last mile financiers such as banks, MFIs and NBFCs for lending to small entrepreneurs having loan requirement up to Rs 10 lakh.

·       Between FY16 and FY19, loans disbursed under the scheme have grown by over 30 per cent annually. While the massive drive by the government was intended to address the funding need of small businesses, the unbridled growth has impacted the quality of loans, warranting a closer scrutiny.

·       According to the queries raised in the parliament about 2% of the loans sanctioned have turned bad since the inception of the scheme.

·       The top banks constituted nearly half of the total bad loans reported under MUDRA scheme and increasing frauds reported in the banks due to misuse of funds.

·       RBI indicating the potential risk and streamlining the appraisal process is not enough, it will have to assess the syste-wide implications in a comprehensive manner.

Fixing the flaws

·       Rationalizing the targets under the scheme so that loans are distributed as per the rules and regulations.

·       Effective monitoring and appraisal systems is the need of the hour.

·       Focus more on targeted lending based on the genuine profiles rather than on focusing on the achievements.

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